Problem 2: Cournot Competition (30 points). Consider the problem of the Angels and Dodgers, two teams...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Problem 2: Cournot Competition (30 points). Consider the problem of the Angels and Dodgers, two teams in the MLB. Before the season begins, the Angels and Dodgers simultaneously choose the number of wins WA and Wp they are each going to get this season by constructing a roster of players. Assume that the average revenue (inverse demand) for wins is given by: AR(W) = P(W) = 240 – 2W where W = WA + WD is the sum of the two teams' wins. Baseball fans in Los Angeles will choose one team to support (i.e. buy) which determines the 'price' of a win, and fans don't have preferences for either team before the season begins. It is costly for each team to increase the number of wins because teams must acquire better talent. The cost of an additional win is constant at MC = 180 for each team. a) Suppose that each team chooses their own WA and WD to maximize profits. Find the best response function for each team and then find the Nash equilibrium number of wins for each team. Find the equilibrium price and profits of each team. b) Suppose that each team chooses their own WA and Wp to maximize the number of wins. Find the best response function for each team and characterize the Nash equilibrium number of wins. Find the equilibrium price and profits of each team. c) Suppose that the Angels are maximizing profits while the Dodgers are maximizing the number of wins. At the Nash equilibrium, which team will win more games? Which team gets a higher price? Which team has higher profits? (You can either solve for the new equilibrium values or use your intuition and provide a concise explanation.) Problem 2: Cournot Competition (30 points). Consider the problem of the Angels and Dodgers, two teams in the MLB. Before the season begins, the Angels and Dodgers simultaneously choose the number of wins WA and Wp they are each going to get this season by constructing a roster of players. Assume that the average revenue (inverse demand) for wins is given by: AR(W) = P(W) = 240 – 2W where W = WA + WD is the sum of the two teams' wins. Baseball fans in Los Angeles will choose one team to support (i.e. buy) which determines the 'price' of a win, and fans don't have preferences for either team before the season begins. It is costly for each team to increase the number of wins because teams must acquire better talent. The cost of an additional win is constant at MC = 180 for each team. a) Suppose that each team chooses their own WA and WD to maximize profits. Find the best response function for each team and then find the Nash equilibrium number of wins for each team. Find the equilibrium price and profits of each team. b) Suppose that each team chooses their own WA and Wp to maximize the number of wins. Find the best response function for each team and characterize the Nash equilibrium number of wins. Find the equilibrium price and profits of each team. c) Suppose that the Angels are maximizing profits while the Dodgers are maximizing the number of wins. At the Nash equilibrium, which team will win more games? Which team gets a higher price? Which team has higher profits? (You can either solve for the new equilibrium values or use your intuition and provide a concise explanation.)
Expert Answer:
Answer rating: 100% (QA)
classmate Dete Page Cournot Competitioni ot implies a set situation duopaly producin... View the full answer
Related Book For
Behavioral Finance Psychology Decision-Making and Markets
ISBN: 978-0324661170
1st edition
Authors: Lucy Ackert
Posted Date:
Students also viewed these accounting questions
-
Suppose that the inverse market demand for pumpkins is given by P = $10 - 0.05Q. Pumpkins can be grown by anybody at a constant marginal cost of $1. a. If there are lots of pumpkin growers in town so...
-
Demand for microprocessors is given by P = 35 - 5Q, where Q is the quantity of microchips (in millions). The typical firms total cost of producing a chip is Ci = 5qi, where qi is the output of firm...
-
A persons demand for gizmos is given by the following equation: q = 6 0.5p + 0.0002I Where, q is the quantity demanded at price p when the persons income is I. Assume initially that the persons...
-
You need to write a paper about the leadership and your responsibility in an organization. Which types of problems can be occurred and how can you face them
-
Go to the ASX website (www.asx.com.au). a. Click on 'Education", then 'What are shares?' Complete the course 'Risks and benefits of shares'. Summarise the benefits of owning shares in a company. b....
-
The fixed capital investment (excluding the cost of land) of a new project is estimated to be $150.0 million, and k 1 the salvage value of the plant is $10.0 million. Assuming a seven-year equipment...
-
Air at \(T_{1}=300 \mathrm{~K}, p_{1}=303 \mathrm{kPa}\), and \(V_{1}=0.5 \mathrm{~m} / \mathrm{s}\) enters the Venturi shown in Fig. P5.43. The air leaves at \(T_{2}=220 \mathrm{~K}\) and \(p_{2}=\)...
-
A retail website sells a variety of products including clothes, electronics, furniture, sporting goods, books, video games, CDs and DVDs, among other items. An average customer order is $47. Weekly...
-
One psychologist showed a shaky video of a guy placing a bomb to the participants in his study (and 60 minutes showed us!) What did that study teach us?
-
Asbat Pharmaceuticals (Asbat) is a leading pharmaceutical company that has been in existence for 22 years. Asbat has a calendar year-end and is audited annually. Asbat only operates in the United...
-
2. You have a 350 strain gage with a gage factor of 2.00. Sketch the Wheatstone Bridge circuit for a bridge arrangement using the 3-wire connection. Given an excitation voltage of 10 V, what is the...
-
What insights can be gleaned from conversation analysis regarding the structure, organization, and negotiation of meaning within verbal interactions, and how do these insights inform broader...
-
What role do ethnomethodological approaches play in uncovering the underlying norms and assumptions that govern everyday social interactions, and how do these insights inform our understanding of...
-
Briefly summarise the processes used by the organisation to manage sales, invoicing, purchasing, payments and receipts and give at least one detailed reason for each process to show why it is...
-
How do micro-level interactions intersect with broader macro-level structures, such as institutional arrangements, cultural discourses, and historical contexts, to produce and reproduce patterns of...
-
In what ways do micro-level phenomena, such as everyday rituals, conversational rituals, and nonverbal communication, contribute to the construction and maintenance of social order and cohesion...
-
1. purchased 500 shares of stock at a price of $34.20 a share and received a dividend of $1.68 per share. After six months, he resold the stock for $65.30 a share. What was his total dollar return?...
-
Subtract the polynomials. (-x+x-5) - (x-x + 5)
-
Describe how educational efforts should be directed towards avoiders.
-
Describe how momentum can be refined by conditioning on the entire term structure of interest rates in the manner of the Grinblatt and Moskowitz regression model.
-
Overconfidence does not quickly dissipate via learning because of the existence of contributing biases. Explain.
-
A mixture of benzene and monochlorobenzene is to be separated into almost pure products by distillation. Determine an appropriate operating pressure at the top of the tower.
-
The feed to a distillation tower consists of \(14.3 \mathrm{kmol} / \mathrm{hr}\) of methanol, \(105.3 \mathrm{kmol} / \mathrm{hr}\) of toluene, \(136.2 \mathrm{kmol} / \mathrm{hr}\) of ethylbenzene,...
-
In a reboiled absorber, operating as a deethanizer at 400 psia to separate a light hydrocarbon feed, conditions at the bottom tray are: Liquid Phase Molar flow = 1, \(366 \mathrm{lbmol} /...
Study smarter with the SolutionInn App