Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Will you please help me solve these economics problems so I can gain a better understanding of the concepts and teach myself how to solve

Will you please help me solve these economics problems so I can gain a better understanding of the concepts and teach myself how to solve them?

image text in transcribed
#1 ASSIGNMENT 5 -ECON 1. Consider the following markets for perfect complements. The demand for both firm 1 and for firm 2 is given by the demand function Q = 1 - P, where P = p1 + p2. Both firms' costs are normalized to zero (so, profit is equal to revenue). (a) Suppose that both firms simultaneously set prices to maximize their respective profit. Find the Nash equilibrium. (b) Suppose now that the game is changed to a sequential move game: First, Firm 1 sets its price and then firm 2 sets its price. Find the subgame-perfect equilibrium and the equilibrium prices of the two firms. Depending on your result, explain why Firm 1 sets a higher or lower price than in (a). (c) Construct a Nash equilibrium (that is not subgame perfect) in which the total price (i.e., pi + p2) is 0.6. As always, make sure that you describe the behavior of firm 2 in all possible subgames. So, for example, if p1 = 0.2 and p2 = 0.3, then Firm 1 has a demand of 0.5 (and thus a revenue of 0.1), and Firm 2 also has a demand of 1/2 (and thus a revenue of 0.15)

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

Commercial Fishing On The Outer Banks

Authors: R Wayne Gray, Nancy Beach Gray

1st Edition

1439667055, 9781439667057

More Books

Students also viewed these Economics questions

Question

1. To understand how to set goals in a communication process

Answered: 1 week ago