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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) = 1q1, firm 2's costs are C2 (92) = 692 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? b) (0.5 point) If Firm 1 chooses 91 = 100, what quantity will Firm 2 choose? c) (1 point) In the subgame perfect Nash equilibrium of this game, firm 1 produces what quantity? 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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