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- Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Film A) is large and the other film (Film B) is small, as the prisoners dilemma box in Table 10.4 shows. Assuming that both films know the payoffs, what is the likely outcome in this case?There are two firms in the market (duopoly). These two firms are competingsimultaneously. The first firm chooses its output level (x) by predicting the second firm’soutput (y). Let c denote the total cost function c(x) = x and c(y) = y. Also, let’s assumethat the inverse demand function is p(Y) = 7 - Y where Y = x + y. (1) Obtain the reactionfunction of the first firm. (2) Find the equilibrium (output and profit of each firm) whentwo firms simultaneously compete◄ Search 12:47 PM Sun Nov 12 ← Note Nov 12, 2023 Uptown's price strategy The Nash equilibrium occurs when High Low LED RareAir's price strategy High $12 $15 The more favorable outcome would be for $12 Tt ✪ $6 B Low $6 D $8. $15 $8 S O both firms have an incentive to deviate from this strategy given the strategy of the competing firm. It is shown by the dominant strategy of cell A. 92% neither firm has an incentive to deviate from this strategy given the strategy of the competing firm. It is shown by the dominant strategy of cell D. O one firm consistently has an incentive to deviate from this strategy given the strategy of the competing firm. It is shown by the high-price strategy of cell B. O one firm consistently has an incentive to deviate from this strategy given the strategy of the competing firm. It is shown by the high-price strategy of cell C. O the firms to collude and use the high-price strategy but this strategy requires cooperation. O one firm to take the lead and let the…
- Two firms produce identical products at zero cost, and theycompete by setting prices. If each firm charges a low price,then both firms earn profits of zero. If each firm charges ahigh price, then each firm earns profits of £30. If one firmcharges a high price and the other firm charges a low price,the firm that charges the lower price earns profits of £50, andthe firm charging the higher price earns profits of zero. (a) Which oligopoly model best describes this situation?(b) Write this game in normal form.(c) Suppose the game is infinitely repeated. Can theplayers sustain the "collusive outcome" as a Nashequilibrium if the interest rate is 50 percent? Explain. Please answer the a, b and c parts.Save Answer Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies spit the market and earn $60 million each. If they both advertise, they again split the market, but profits are lower by $20 million since each company must bear the cost of advertisirlg. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $70 million while the company that does not advertise earns only $30 million. What will these two companies do if they behave as individual profit maximizers? Neither company will advertise, and PM Inc. earns $60. One company will advertise, the other will not. Brown Inc. earns $70. Both companies will advertise, and PM Inc. earns $40. Both companies will advertise, and PM Inc. earns $60.Q² 4 PROBLEM (4) Firm A and Firm B with identical total costs TCA (QA) related goods and competing in prices (Bertrand competition), with demands: QA = 510 - 2PA + pв and Qв= 510 - 2pв+ pa, respectively. = and TCB (QB) Q² 4 are producing (a) Calculate the Bertrand-Nash equilibrium prices. (b) Calculate the prices they charge when A is the leader and sets its price first, anticipating B's best response and taking it into account (like in Stackelberg competition). (c) Calculate the prices they charge when they collude, in order to maximize sum of their profits.
- 1. Two firms (A and B) play a competition game (i.e. Cournot) in which they can choose any Qi from 0 to ¥. The firms have the same cost functions C(Qi) = 10Qi + 0.5Qi2, and thus MCi = 10 + Qi. They face a market demand curve of P = 220 – (QA + QB). a. Assume firm A chooses quantity first. Frim B observes this choice and then chooses its own quantity. What is Frim B's profit as a function of QA and QB? b. Firm B has MRB = 220 – 2QB – QA. What is firm B’s best response to an arbitrary QA selected by firm A? c. Given that firm A expects firm B’s best response, what is firm A’s profit as a function of QA? (Hint: the only unknown variable in the profit function should be QA) d. Firm A has MRA = 150 – 4QA/3. What are the equilibrium QA and QB selected in this game? e. What is the equilibrium price, and how much profit does each firm collect?1. Consider an industry with inverse demand given by p = 8 – q, where p is the price, and q is the quantity. There is one incumbent firm and one potential entrant. In the first stage of the game, the incumbent chooses its quantity qi. In the second stage, the potential entrant observes qi and chooses its quantity Ce. The potential entrant can also decide not to enter the market. The production technology of both firms are represented by the cost function C = 2q. To enter industry implies a fixed entry cost of F. (a) Find the equilibrium of the game, assuming that the potential entrant enters the industry. What are the profits of firms? (b) Assume that entry is not blockaded. For which values of F does the incumbent firm prefer to deter entry? (c) For which values of F, entry blockaded?Two firms produce and sell differentiated products that are substitutes for each other. Their dernand curves are Firm 1:Q, 40-3P,+ P, Firm 2: 0, - 40 - 3P,+ P, Bolh firms have constant marginal costs of $5.00 per unit. Both fims set their own price and take their competitor's price as fixed. Use the Nash equilibrium concept to determine the equiltbirium set of prices. Since Ihe firms ane identical, they wil set the same prices and produce the same quantities. In equibrium, each firm will charge a price of 8 and produce units of output. (Enter your responses rounded to wo decimal places)
- Consider the Cournot duopoly with linear demand function ? = 2000 − 2Q, where P is the price and Q = q1 + q2 is the total supply. Firm 1 and firm 2 has constant marginal cost of 600. Just answer the E, F and G, thank you bartleby! a. If firm compete in price, draw in detail the best response of each firm.b. Determine and explain the Bertrand equilibrium.c. What is the equilibrium quantity and how much profit for each firm?d. Explain the Bertrand Paradox in (c)!e. If firm 1 has capacity of production 450 and firm 2 has capacity of 200. Determine the Bertrand equilibrium.f. What is the equilibrium quantity, and how much profit for each firm?g. Is there any paradox in (f)?Suppose that currently there are no airlines serving the city of South Podunk. Both Accommodating Airlines and Friendly Flyers are looking to enter that morket (They are the only two.) The figure shows in extensive form the possible outcomes of the two firms' decisions. The payoffs represent, in thousands per month, the profit (or loss) the firm will realize from its decision. What does this extensive form game Indicate about the decision to enter the South Podunk market? Accommodating Airlines (AA) Moves First Friendly Flyers (FF) Move Second Profits (AA FF) Enter A (8, 5) Enter FF Don't Enter C 12. 0) AA Enter 8 (0, 10) Don't Enter FF2 Don't Enter D (0, 0) Multiple Choice Both airlines are better off by entering this market The outcome of this game is a prisoner's dilemma. O Accommodating Airlines has a first-mover advantage in this game. Friendly Flyers has a first-mover advantage in this game.2 clothing manufacturers, LE and LL B, are deciding what price to charge for very similar field coats. Cost of producing these coats is $100. The coats are very close substitutes, so customers swarm to the seller that offers the lowest price. If both firms offer the same prices, each receives half of the customers. Assume the two firms have the choice of pricing at prices of $103, $102, or $101. The profit each firm would earn at various prices is shown in the payoff matrix below $103 ($150, $150) ($0, $200) ($0, $120) Lands' End $102 ($200, $0) ($100, $100) ($0, $120) $101. ($120, $0) ($120, $0) ($50, $50) What is the Nash equilibrium and expected profits to LLB and LE of this game? If this was a mixed strategy game in which LLB has a 25% percent chance of choosing a price of $101, a 25% chance of choosing price of $102, and a 50% chance of choosing $103, while LE has a1/3 chance of…