ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 3, Problem 3.11P
To determine
The various sources of the government revenue in the United States, determining the important tax for each level of government and the maximum revenue earning taxes of the government.
Concept Introduction:
Government Revenue: It is the revenue generated by the government from various sources which is utilized for the welfare of the general population.
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Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.
(Hint:
Show that learning by doing lowers its cost in the second period.)
Part 2
Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash equilibrium?
Answer
M” method
Given the following model, solve by the method of “M”. (see image)
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