ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question 2
In a recent strategy meeting, the Chief Operating Officer (COO) had asked
you to report on the best way to respond to your main competitor's
production decisions. You modeled the industry as a Cournot duopoly and
calculated profit-maximizing production levels for your firm, depending on
what we learn about the competitor's output. Overall sales in the industry Q
depend on the market price P as follows: Q = 120 - 4P. Costs per unit are
constant at MC = 3 for both firms. Impressed with your work on production
strategy, the C00 looks at your musingly. "You seem to have a good grasp
of this. Is it somehow possible to predict the price?" “Actually, yes," you say.
"I can use game theory to do that." It doesn't take you long to work out the
Nash equilibrium quantites, and an hour later you e-mail your price
prediction to the COO. The equilibrium price is:
%3D
%3D
Approximately $9
$12
Approximately $39
$60
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Transcribed Image Text:Question 2 In a recent strategy meeting, the Chief Operating Officer (COO) had asked you to report on the best way to respond to your main competitor's production decisions. You modeled the industry as a Cournot duopoly and calculated profit-maximizing production levels for your firm, depending on what we learn about the competitor's output. Overall sales in the industry Q depend on the market price P as follows: Q = 120 - 4P. Costs per unit are constant at MC = 3 for both firms. Impressed with your work on production strategy, the C00 looks at your musingly. "You seem to have a good grasp of this. Is it somehow possible to predict the price?" “Actually, yes," you say. "I can use game theory to do that." It doesn't take you long to work out the Nash equilibrium quantites, and an hour later you e-mail your price prediction to the COO. The equilibrium price is: %3D %3D Approximately $9 $12 Approximately $39 $60
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