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Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity q1 . Firms 2 and 3 observe Firm 1's choice, and then
Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity q1 . Firms 2 and 3 observe Firm 1's choice, and then proceed to simultaneously choose q2 and 93, respectively. Market demand is given by p(Q) = 100 - Q, and Q = q1 + 92 + 93. Firm 1's costs are c1(q1 ) = 391, firm 2's costs are c2(92) = 192 and firm 3's costs are C3(93) = 193. Starting from the end of the game, you can express Firm 2's best response function in terms of q1 and 93 , and you can similarly express Firm 3's best response function in terms of q1 and q2 . Using these, answer the following questions. a) If Firm 1 chooses q1 = 12, what quantity will Firm 2 choose? b) If Firm 1 chooses q1 = 100, what quantity will Firm 2 choose? c) In the subgame perfect Nash equilibrium of this game, firm 1 produces what quantity? d) In the subgame perfect Nash equilibrium of this game, firm 2 and firm 3 each produce what quantity
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