(a) Solve for the Nash equilibrium of the game including firm out- puts, market price, aggregate output, and firm profits (Hint: the NE is symmetric). (b) Now suppose these three firms play a 2-stage game. In stage 1, they produce capacities 91, 92 and 93, which are equal to the Nash equilibrium quantities of the Cournot game characterised by part (a). In stage 2, they simultaneously decide on their prices P1, P2 and P3. The marginal cost for each firm to sell up to capacity is 0. It is impossible to sell more than capacity. The

(a) Solve for the Nash equilibrium of the game including firm out- puts, market price, aggregate output, and firm profits (Hint: the NE is symmetric). (b) Now suppose these three firms play a 2-stage game. In stage 1, they produce capacities 91, 92 and 93, which are equal to the Nash equilibrium quantities of the Cournot game characterised by part (a). In stage 2, they simultaneously decide on their prices P1, P2 and P3. The marginal cost for each firm to sell up to capacity is 0. It is impossible to sell more than capacity. The

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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