Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

This is a Game theory question Assume that the demand for chalk is = 8 -0.1, where P is the market price and Q is

This is a Game theory question

Assume that the demand for chalk is = 8 -0.1, where P is the market price and Q is the total market output measured in thousands of boxes of chalk. Suppose that there are three firms in this industry, each of which has a constant variable cost of $2. Each firm choose its own output level, qi, and takes whatever price the market determines. To simplify the problem, each firm can choose from three levels of output (in thousands): low ( q1 = 8), medium ( q1 = 10), or high ( q1 = 12), with fixed costs (in thousands) of $2, $4, and $4, for low, medium, and high output, respectively. Assume, for simplicity, that all other firms choose the same output level (as each other), so that low ( q2= 24), medium ( q2= 30), or high ( q2= 36).

a. Construct a payoff table for this game, using profits per firm as the payoffs.

b. Identify all pure strategy Nash equilibria (if any exist).

c. Describe the competitive nature of this industry. How might this change if each of the other firms can independently choose their output level? What is each firm likely to choose? What implication(s) would this have for other firms?

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

Financial Management For Decision Makers

Authors: Peter Atrill

9th Edition

1292311436, 978-1292311432

More Books

Students also viewed these Finance questions

Question

Describe how language emerges.

Answered: 1 week ago

Question

The sugar seeet company range

Answered: 1 week ago

Question

Evaluate the impact of unions on nurses and physicians.

Answered: 1 week ago

Question

Describe the impact of strikes on patient care.

Answered: 1 week ago

Question

Evaluate long-term care insurance.

Answered: 1 week ago