Economics (Book Only)
12th Edition
ISBN: 9781285738321
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 31, Problem 5VQP
To determine
Describe the effect of asymmetric information in market failure.
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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)
Chapter 31 Solutions
Economics (Book Only)
Ch. 31.1 - Prob. 1STCh. 31.1 - Prob. 2STCh. 31.2 - Prob. 1STCh. 31.2 - Prob. 2STCh. 31.2 - Prob. 3STCh. 31.2 - Prob. 4STCh. 31.3 - Prob. 1STCh. 31.3 - Prob. 2STCh. 31.3 - Prob. 3STCh. 31.4 - Prob. 1ST
Ch. 31.4 - Prob. 2STCh. 31.4 - Prob. 3STCh. 31.5 - Prob. 1STCh. 31.5 - Prob. 2STCh. 31.5 - Prob. 3STCh. 31 - Prob. 1VQPCh. 31 - Prob. 2VQPCh. 31 - Prob. 3VQPCh. 31 - Prob. 4VQPCh. 31 - Prob. 5VQPCh. 31 - Prob. 1QPCh. 31 - Prob. 2QPCh. 31 - Prob. 3QPCh. 31 - Prob. 4QPCh. 31 - Prob. 5QPCh. 31 - Prob. 6QPCh. 31 - Prob. 7QPCh. 31 - Prob. 8QPCh. 31 - Prob. 9QPCh. 31 - Prob. 10QPCh. 31 - Prob. 11QPCh. 31 - Prob. 12QPCh. 31 - Economists sometimes shock noneconomists by...Ch. 31 - Prob. 14QPCh. 31 - Prob. 15QPCh. 31 - Prob. 1WNGCh. 31 - Prob. 2WNGCh. 31 - Prob. 3WNG
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