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Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity , . Firms 2 and 3 observe Firm 1's choice, and then
Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity , . Firms 2 and 3 observe Firm 1's choice, and then proceed to simultaneously choose g9 and g3, respectively. Market demand is given by p(Q) = 100 Q,and Q = ; + g2 + g3. Firm 1's costs are (q1) = 6qq, firm 2's costs are e2 (ga) = 1g2 and firm 3's costs are c3(g3) = 1gs. Starting from the end of the game, you can express Firm 2's best response function in terms of g1 and g3, and you can similarly express Firm 3's best response function in terms of g; and g5. 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 gq; = 6, what quantity will Firm 2 choose? i b) (0.5 point) If Firm 1 chooses g; = 100, what quantity will Firm 2 choose? i c) (1 point) In the subgame perfect Nash equilibrium of this game, firm 1 produces what quantity? i d) (0.5 point) In the subgame perfect Nash equilibrium of this game, firm 2 and firm 3 each produce what quantity
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