1. The market (inverse) demand function for a homogeneous good is P(Q) = 10 – Q. There are two firms: firm 1 has a constant marginal cost of 2 for producing each unit of the good, and firm 2 has a constant marginal cost of 1. The two firms compete by setting their quantities of production, and the price of the good is determined by the market demand function given the total quantity. a. Calculate the Nash equilibrium in this game and the corresponding market price when firms simultaneously choose quantities. b. Now suppose firml moves earlier than firm 2 and firm 2 observes firm 1 quantity choice before choosing its quantity find optimal choices of firm 1 and firm 2.
1. The market (inverse) demand function for a homogeneous good is P(Q) = 10 – Q. There are two firms: firm 1 has a constant marginal cost of 2 for producing each unit of the good, and firm 2 has a constant marginal cost of 1. The two firms compete by setting their quantities of production, and the price of the good is determined by the market demand function given the total quantity. a. Calculate the Nash equilibrium in this game and the corresponding market price when firms simultaneously choose quantities. b. Now suppose firml moves earlier than firm 2 and firm 2 observes firm 1 quantity choice before choosing its quantity find optimal choices of firm 1 and firm 2.
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter17: Oligopoly
Section: Chapter Questions
Problem 5CQQ
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