Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Greatly appreciated! Exercise 1. Tolls (8 marks) If Lauren drives to work, she has to use two toll roads - B(ertrand) and C(ournot) - named

Greatly appreciated!

image text in transcribed
Exercise 1. Tolls (8 marks) If Lauren drives to work, she has to use two toll roads - B(ertrand) and C(ournot) - named after the two firms which built these two toll ways. Let 7g be the toll charged by firm B for using Bertrand. Similarly, let T'c be the toll charged by firm C for using Cournot. Lauren is willing to pay at most $12 (in tolls) per trip. Her demand for trips per week is given by Q = 12 - TB - Tc Suppose the two firms, B and C, have no other costs. Each firm i(= B, C) chooses T; to maximize its own profit ni = Tie. Part 1 (i) (2 marks) Find TB that maximizes firm B's profit, AB, for a given To. Similarly, find Ic that maximizes firm C's profit for a given TB- (ii) (2 marks) Suppose both firms set toll simultaneously. Let (T;, T) denote the Nash equilibrium prices. Find (Tg, Te) and profits of firms B and C in Nash equilibrium. (iii) (2 marks) Suppose firm B chooses TB first and firm C chooses To afterwards. What toll will firm B choose? (iv) (2 marks) Election is in the corner. Opposition leader, Chandra, is proposing a price cap of $3 on tolls. That is, TA

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sociology Of Economic Innovation

Authors: Francesco Ramella

1st Edition

1317621344, 9781317621348

More Books

Students also viewed these Economics questions

Question

Keep your head straight on your shoulders

Answered: 1 week ago

Question

Be straight in the back without blowing out the chest

Answered: 1 week ago

Question

Wear as little as possible

Answered: 1 week ago