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- 2. (5 p) Consider an industry with N firms that compete in quantities. The cost function of firm i is given by C(9)= cq..
- 2. (5 p) Consider an industry with N firms that compete in quantities. The cost function of firm i is given by C(9)= cq.. The inverse demand curve in the market is given by PQ)= where Q is industry output. Q (a) Suppose all firms choose quantities simultaneously and independently. Calculate the equilibrium outputs. (b) Show that you can get an equilibrium in perfectly competitive industry as a limiting case of equilibrium found in (a). (c) Find a subsidy provided to the firms in part (a) that results in efficient outcome and explain the result intuitively. (d) Suppose that N=2 and the game considered in (a) is infinitely repeated. Show that output levels (9,9)=(4,9), where q = A/(160) could be sustained in equilibrium Propose the corresponding grim trigger strategies and find the minimum value of 8. Do not forget to check the credibility of punishment. - 2. (5 p) Consider an industry with N firms that compete in quantities. The cost function of firm i is given by C(9)= cq.. The inverse demand curve in the market is given by PQ)= where Q is industry output. Q (a) Suppose all firms choose quantities simultaneously and independently. Calculate the equilibrium outputs. (b) Show that you can get an equilibrium in perfectly competitive industry as a limiting case of equilibrium found in (a). (c) Find a subsidy provided to the firms in part (a) that results in efficient outcome and explain the result intuitively. (d) Suppose that N=2 and the game considered in (a) is infinitely repeated. Show that output levels (9,9)=(4,9), where q = A/(160) could be sustained in equilibrium Propose the corresponding grim trigger strategies and find the minimum value of 8. Do not forget to check the credibility of punishment
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