Question
Please help me solve this with all the calculations. Consider the following variant of the Dixit model we just discussed. Demand is given by P
Please help me solve this with all the calculations.
Consider the following variant of the Dixit model we just discussed. Demand is given by P = 50 0.01Q. The production function is qi = min{Li ,Ki}. The wage rate is w = 10 and the rental rate of capital is r = 10
a. Solve for firm 2's best response function in period T = 2
b. Solve for firm 2's profits as a function of firm 1's quantity
c. Solve for the two parts that we use to describe firm 1's best response function (BR when MC = w and when MC = w + r) d. What is the range of possible q1 that we can have in equilibrium 5. Given that range, what is the corresponding range of (before fixed costs) profits to firm 2
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started