2. [22 marks] (Repeated Cournot Game) Suppose there are two firms, 1 and 2, each with...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. [22 marks] (Repeated Cournot Game) Suppose there are two firms, 1 and 2, each with MC = AC = 10. They each choose quantities of output, q1 and 92. The market demand is p=70-2q, where q = 91 + 92. Each firm discounts the future at rate < 1 per period. a. [6 marks] First calculate the Cournot equilibrium outputs. Call these q and q2. b. [4 marks] Next, calculate how much each firm would produce if the two firms colluded to act as a monopoly. Call these q and 92. c. [6 marks] Now suppose (as a simplification), each period the firms can choose one of two strategies: produce either qor q, where i = 1,2 denotes the firm in question. Draw a two-by-two simultaneous game showing what payoffs would be in each outcome, and briefly explain why collusion can't occur if the game is played exactly one time. d. [6 marks] Finally, assume that the two firms plan on playing the game in (c) an 'infinite' number of times. Each has the dynamic strategy 'collude if we colluded last period, otherwise never collude again. Calculate the minimum value of S which supports collusion in every period as a dynamic equilibrium. Be sure to show your work. e. BONUS [10 marks] Leaving aside the issue of collusion, suppose the two firms played a Stackleberg game (only once!) where firm 1 chooses its output before firm 2. How much would each firm produce in equilibrium? What would be the price in the market? What profit would each firm make? Show your work. 2. [22 marks] (Repeated Cournot Game) Suppose there are two firms, 1 and 2, each with MC = AC = 10. They each choose quantities of output, q1 and 92. The market demand is p=70-2q, where q = 91 + 92. Each firm discounts the future at rate < 1 per period. a. [6 marks] First calculate the Cournot equilibrium outputs. Call these q and q2. b. [4 marks] Next, calculate how much each firm would produce if the two firms colluded to act as a monopoly. Call these q and 92. c. [6 marks] Now suppose (as a simplification), each period the firms can choose one of two strategies: produce either qor q, where i = 1,2 denotes the firm in question. Draw a two-by-two simultaneous game showing what payoffs would be in each outcome, and briefly explain why collusion can't occur if the game is played exactly one time. d. [6 marks] Finally, assume that the two firms plan on playing the game in (c) an 'infinite' number of times. Each has the dynamic strategy 'collude if we colluded last period, otherwise never collude again. Calculate the minimum value of S which supports collusion in every period as a dynamic equilibrium. Be sure to show your work. e. BONUS [10 marks] Leaving aside the issue of collusion, suppose the two firms played a Stackleberg game (only once!) where firm 1 chooses its output before firm 2. How much would each firm produce in equilibrium? What would be the price in the market? What profit would each firm make? Show your work.
Expert Answer:
Related Book For
Microeconomics
ISBN: 9781464146978
1st Edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson
Posted Date:
Students also viewed these economics questions
-
X-Value Y-Value X-Value Y-Value 10 6 11 6 10 5 8 9 11 13 2657 7 7 11 237
-
CANMNMM January of this year. (a) Each item will be held in a record. Describe all the data structures that must refer to these records to implement the required functionality. Describe all the...
-
Interest is a concept familiar to most people: every credit card in existence has a term called annual percentage rate (APR), which is an interest rate. Suppose you charged $1,000 to a credit card...
-
PLEASE, PLEASE use an Excel formula:1. Begin the formula with an = sign.2. Reference cells, instead of entering values.Example: =PV(H8+H9) A company borrowed money from a local bank. The note the...
-
Complete the generalization of the Pythagorean theorem begun in Problem 59 of section 0.3 by showing that A+B = C in figure 12 these being the areas of similar regions built on the two legs and the...
-
Express the integral as an infinite series. So dt 1-14 for x < 1
-
Lake Company has pretax GAAP income of \(\$ 100,000\) in 2020, its first year of operations. Lake Company has depreciation expense in 2020 for GAAP purposes that is \(\$ 60,000\) less than the amount...
-
Zebra Imaginarium, a retail business, had the following cash receipts during December 20--. The sales tax is 6%. Dec. 1 Received payment on account from Michael Anderson, $1,360. 2 Received payment...
-
During Heaton Company??s first two years of operations, itreported absorption costing net operating income as follows:Year 1Year 2Sales (@ $63 per unit)$ 1,197,000$ 1,827,000Cost of 2 answers
-
Benito Mendez opened Mendez Appraisals. He rented office space and has a part-time secretary to answer the telephone and make appraisal appointments. His chart of accounts is as follows: Mendezs...
-
Accounting Questions: What is the difference between cash basis and accrual basis accounting? How does the matching principle impact financial statements? Explain the concept of depreciation and its...
-
1. Cybersecurity is a concern for both institutions and individuals. Examine at least three cybersecurity measures CNAQ can implement to keep staff, faculty, and/or students secure while using CNAQ...
-
a) Determine the factor of safety, for the short-term condition, of the embankment shown in Figure 1, for the potential failure circle indicated. b) Determine the FS for the embankment given in...
-
The communications/public relations department traditionally creates a strategic communication plan for an organization. Explain how it impacts other departments. Give reference.
-
Explain the thought process behind the mantra "pay for performance" that most companies or organizations use to justify their executive compensation plans.
-
Compute the EUAC Uniform Annual Cost> for the following cashflows, rounded to the nearest whole dollar value (suggestion: Put everything into a Final Value at t=6, then annualize the final value) ...
-
Simplify each expression by restating it using positive exponents only. a) ab-5 ab -2 b) a3b-2 c) [(p) (p)] -3 12s3 d) 4s-7
-
What impact has the Internet had on the globalization of small firms? How do you think small companies will use the Internet for business in the future?
-
Suppose that Grover consumes two goods, cookies and milk. Grovers income expansion path is shown in the diagram below. Use the information in the diagram to explain whether each of the statements...
-
Combine the graphs and equations from questions 3 and 4 and determine the following: a. The equilibrium price of broadband Internet service b. The equilibrium quantity of broadband Internet service...
-
Baldor, Inc. measures the marginal rate of technical substitution (MRTS) at M P L /M P K = 3. The prices of labor and capital faced by Baldor are such that currently W/R = 4. a. Is Baldor minimizing...
-
The following questions concern possible violations of the rules of conduct discussed in the chapter. Choose the best response a. In which one of the following situations would a public accountant be...
-
The following questions concern independence and the rules of professional conduct or GAAS. Choose the best response. a. What is the meaning of the generally accepted auditing standard that requires...
-
Identify and explain factors that should keep the quality of audits high even though advertising and tender ing are allowed.
Study smarter with the SolutionInn App