Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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 (91) = 1q1, firm 2's costs are C2 (92) = 6q2 and firm 3's costs are C3 (93) = 693. Starting from the end of the game, you can express Firm 2's best response function in terms of q1 and q3, and you can similarly express Firm 3's best response function in terms of q1 and 92 . Using these, answer the following questions. If rounding is needed, write your answers to 3 decimal places. a) (0.5 point) If Firm 1 chooses 91 = 12, what quantity will Firm 2 choose? 3.5 b) (0.5 point) If Firm 1 chooses 91 = 100, what quantity will Firm 2 choose? 0 c) (1 point) In the subgame perfect Nash equilibrium of this game, firm 1 produces what quantity? 0 d) (0.5 point) In the subgame perfect Nash equilibrium of this game, firm 2 and firm 3 each produce what quantity? 40.385
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started