A homogenous good industry consists of two firms (firm 1 and firm 2). Their cost functions are cq₁ and cq2, respectively, where c<2. The market demand function is p=10-Q, where Q=q₁+q₂. (a) Assume that the two firms play the Bertrand price game. Find the firms' choices in the Bertrand-Nash equilibrium. (b) Assume that the two firms play the Cournot quantity game. Find the firms' choices in the Cournot-Nash equilibrium. (c) Assume the two firms play the Stackelberg game with firm 1 as the leader. Find the firms' equilibrium choices in the Stackelberg equilibrium.

A homogenous good industry consists of two firms (firm 1 and firm 2). Their cost functions are cq₁ and cq2, respectively, where c<2. The market demand function is p=10-Q, where Q=q₁+q₂. (a) Assume that the two firms play the Bertrand price game. Find the firms' choices in the Bertrand-Nash equilibrium. (b) Assume that the two firms play the Cournot quantity game. Find the firms' choices in the Cournot-Nash equilibrium. (c) Assume the two firms play the Stackelberg game with firm 1 as the leader. Find the firms' equilibrium choices in the Stackelberg equilibrium.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.5P

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