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5. Consider a market for an identical product that has (inverse) demand given by P = 70 0.256) where Q is the total output in
5. Consider a market for an identical product that has (inverse) demand given by P = 70 0.256) where Q is the total output in the market. In this market, rm 1 chooses its output ql rst and then rm 2, after observing ql, chooses its output level q2. Firm 1 has a constant marginal cost cl = 10 per unit and rm 2 has a constant marginal cost 02 = 15 per unit. a. What is the subgame perfect equilibrium of this game? How much output is each rm producing in equilibrium? How much prots are each rm making in equilibrium? (5 pts) b. Now suppose that we reverse the order of the game such that rm 2 now moves rst and rm 1 moves second after observing rm 2's output. What is the subgame perfect equilibrium of this game? How much output is each rm producing in equilibrium? HOW much prots are each rm making in equilibrium? (5 ptS) c. Now suppose that rm 2's marginal cost was reduced to C2 = 10 per unit but rm 2 is back to being the second mover again (rm 1 moves rst and rm 2 moves second after observing rm 1's output). What is the subgame perfect equilibrium of this game? How much output is each rm producing in equilibrium? How much prots are each rm making in equilibrium? (5 pts)
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