Question
Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity ql. Firms 2 and 3 Firm 1 s choice, and then
Consider the following oligopolistic market. In the first stage, Firm 1 chooses quantity ql. Firms 2 and 3 Firm 1 s choice, and then proceed to simultaneously choose q-2 and q], respectively. Market demand is given by p(Q) = 100 Q, and Q = ql -F q-2 + q]. Firm I's costs are Cl (qi) = 5q1, firm 2's costs are C2(q2) = 3q2 and firm 3's costs are ca(q3) = 3qa. Starting from the end of the game, you can express Firm 2's best response function in terms of ql and qa, and you can similarly express Firm 3's best response function in terms of ql and Q. Using these, answer the following questions. a) If Firm 1 chooses ql = 6, what quantity will Firm 2 choose? 100, what quantity will Firm 2 choose? b) If Firm 1 chooses ql = c) In the subgame perfect Nash equilibrium of this game, firm 1 produces what quantit)Q d) In the subgame perfect Nash equilibrium of this game, firm 2 and firm 3 each produce what quantity?
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