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2. [ALL ABOUT THE GAME THEORY (35 MARKS] Suppose the market demand function is given by Q - 200 -5P. The marginal cost of the

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2. [ALL ABOUT THE GAME THEORY (35 MARKS] Suppose the market demand function is given by Q - 200 -5P. The marginal cost of the firms in this market is 10. (a) (5 marks) Suppose it is a monopoly market. Calculate the equilibrium price and quantity and show how the equilibrium is determined in a graph. (b) (10 marks) ignore (a). Now suppose it is a duopoly market and there are two firms, Firm 1 and Firm 2, in the market. Competition in this market is described by the Cournot model. Solve for the Nash equilibrium price and quantity. Plot of the best response functions of the 2 firms in one graph. (c) (5 marks) Now in the duopoly market, suppose competition in this market is described by the Stackelberg model. Solve for the Nash equilibrium price and quantity, (d) (10 marks) Ignore all questions above. Now suppose firm A is a dominant firm in the market and its marginal cost is 10, There also exists a competitive fringe of 100 price -taking firmis, each of which has a marginal cost function of 20q+10. Solve for the Nash equilibrium price in this model and how the equilibrium is determined in a graph. (e) (5 marks) If the number of the fringe firms increase, will the equilibrium price increase or decrease? Explain the intuition without calculation

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