Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 14, Problem 9P
(a)
To determine
Nash equilibrium given that differentiated products are sold.
(b)
To determine
Equilibrium when firms decide to collude and have the same price.
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Problem 5.1. The inverse market demand for printer paper is given by P = 400 – 2Q. There are two firms
who compete to produce this paper, each with a marginal cost of production equal to c = 40 over a large
range of output (ie, assume constant marginal cost). The two firms compete in quantities, in other words
they each simultaneously choose a quantity to produce (Cournot competition).
Derive the Cournot-Nash equilibrium of this game. Please write final answers in the boxes, showing work in
blank areas.
(a) The reaction function for each firm.
91 (92):
92 (91)
(b) Optimal output q for each firm.
92
=
р
=
=
π1 =
(c) Market price (from demand curve).
(d) Firm profits.
92
=
π2 =
O Cell A
O Cell C
O Cell E
O Cell I
None of the above
Consider a market with two firms, Kellogg and Post, that sell breakfast cereals.
Both companies must choose whether to charge a high price ($4.00) or a low price
($2.50) for their cereals.
These price strategies, with corresponding profits, are depicted in the payoff matrix
to the right. Kellogg's profits are in red and Post's are in blue.
Kellogg
What is the cooperative equilibrium for this game?
$4.00
Price = $2.50
Price =
O A. The cooperative equilibrium is for Kellogg to choose a price of $2.50 and
$800
$50
Post to choose a price of $4.00.
Price = $4.00
$800
%3D
OB. The cooperative equilibrium is for Kellogg and Post to both choose a price
006$
of $2.50.
Post
C. The cooperative equilibrium is for Kellogg and Post to both choose a price
of $4.00.
Price = $2.50
$350
OD. The cooperative equilibrium is for Kellogg to choose a price of $4.00 and
Post to choose a price of $2.50.
%3D
$50
$350
OE. A cooperative equilibrium does not exist for this game.
Is the cooperative equilibrium likely…
Chapter 14 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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Similar questions
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