Two identical firms each have a cost function TC = 2y2 and the market demand for their output is P = -4Q+192a) Write the “best response†function for each firm.b) Find the Nash equilibrium in this model c) Show that if each firm produces 1 fewer units than the result in (b), both firms make more profit. Use this information to construct a normal form game. Explain why this game is a prisoner’s dilemma.
Two identical firms each have a cost function TC = 2y2 and the market demand for their output is P = -4Q+192a) Write the “best response†function for each firm.b) Find the Nash equilibrium in this model c) Show that if each firm produces 1 fewer units than the result in (b), both firms make more profit. Use this information to construct a normal form game. Explain why this game is a prisoner’s dilemma.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.5P
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Two identical firms each have a cost function TC = 2y2 and the market demand for their output is P = -4Q+192a) Write the “best response†function for each firm.b) Find the Nash equilibrium in this model c) Show that if each firm produces 1 fewer units than the result in (b), both firms make more profit. Use this information to construct a normal form game. Explain why this game is a prisoner’s dilemma.
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