Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question in attached file: Question A.2 (Word Limit: 300 words) Two duopolists face an inverse demand curve p = 14-Q for a commodity, where Q

Question in attached file:

image text in transcribed
Question A.2 (Word Limit: 300 words) Two duopolists face an inverse demand curve p = 14-Q for a commodity, where Q is the combined output of the two firms. Both firms have constant marginal cost of c = 2. Let q1 = BRi(q2) and q2 = BR2(q1) denote the best response functions of firm 1 and firm 2 respectively, in the simultaneous move game. (i) Derive expressions for BR1(q2) and BR2(q1). (ii) Find the Cournot equilibrium, by using iterated elimination of strictly dominated strategies. (iii) Suppose that this game is repeated in continuous time and the two firms adjust their outputs as follows: dq1 dt = 2(BR1(q2) - q1) + 4 (92 - BR2(91)) dq2 = BR2(q1) - 92 dt where BRI and BR2 are the functions found in (i). (a) By studying the above dynamic system, identify the long run prevailing price. (b) Compute the time path of the equilibrium price. (c) Assume that the initial conditions are such that all constants in the solution in (b) are pos- itive. Explain whether or not you could recommend buying this commodity at t = 27V5. [20 marks]

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

Moral Controversies In American Politics

Authors: Raymond Tatalovich, Warren Tatalovich

4th Edition

1317464427, 9781317464426

More Books

Students also viewed these Economics questions

Question

What is the financial outlook of the organization?

Answered: 1 week ago

Question

8. What values do you want others to associate you with?

Answered: 1 week ago