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Consider the following oligopolistic market. In the rst stage, Firm 1 chooses quantity q1. Firms 2 and 3 observe Firm 'l's choice, and then proceed
Consider the following oligopolistic market. In the rst stage, Firm 1 chooses quantity q1. Firms 2 and 3 observe Firm 'l's choice, and then proceed to simultaneously choose (12 and (13, respectively. Market demand is given by p(Q) = 100 Q, and Q = q1 l (12 l (13. Firm 1's costs are c1(q1) = 3q1, rm 2's costs are c2 (Q2) 2 1q2 and rm 3's costs are C3 ((13) = 1q3. Starting from the end of the game, you can express Firm 2's best response function in terms of (11 and :13, and you can similarly express Firm 3's best response function in terms of (11 and (12. Using these, answer the following questions. a) (0.5 point) If Firm 1 chooses 111 = 6, what quantity will Firm 2 choose? D b) (0.5 point) If Firm 1 chooses q1 = 100, what quantity will Firm 2 choose? D c) (1 point) In the subgame perfect Nash equilibrium of this game, rm 1 produces what quantity
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