16. Consider an infinitely repeated game where, in each round, two firms compete a la Bertrand in a market with inverse aggregate demand function p(q) = 300 – 2q. The firms have identical marginal costs, 20. What is the minimum discount factor 8 (if any) such that they can sustain the monopoly price by the "perfect Tit-for-Tat" strategy, defined as follows: • Choose the monopoly price in the first period • Choose the collusive price if either (a) both players played the monopoly price in the previous round; or (b) both players played price equal to marginal cost in the previous round • Choose price equal to marginal cost otherwise (a) 1/3 (b) 1/2 (c) 2/3 (d) 1 (e) None of the above options

16. Consider an infinitely repeated game where, in each round, two firms compete a la Bertrand in a market with inverse aggregate demand function p(q) = 300 – 2q. The firms have identical marginal costs, 20. What is the minimum discount factor 8 (if any) such that they can sustain the monopoly price by the "perfect Tit-for-Tat" strategy, defined as follows: • Choose the monopoly price in the first period • Choose the collusive price if either (a) both players played the monopoly price in the previous round; or (b) both players played price equal to marginal cost in the previous round • Choose price equal to marginal cost otherwise (a) 1/3 (b) 1/2 (c) 2/3 (d) 1 (e) None of the above options

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.6P

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1. The market (inverse) demand function for a homogeneous good is P(Q) = 10 - Q. There are two firms: firm 1 has a constant marginal cost of 2 for producing each unit of the good, and firm 2 has a constant marginal cost of 1. The two firms compete by setting their quantities of production, and the price of the good is determined by the market demand function given the total quantity. a. Calculate the Nash equilibrium in this game and the corresponding market price when firms simultaneously choose quantities. b. Now suppose firml moves earlier than firm 2 and firm 2 observes firm 1 quantity choice before choosing its quantity find optimal choices of firm 1 and firm 2.
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1. Consider the (inverse) market demand function for the market in streaming services. P = 120 - 4Q Assume further that the available technology results in Marginal Cost equal to $40. a) Graphically show the market outcome for monopoly, Cournot oligopoly and perfect competition. b) For monopoly, Cournot duopoly and perfect competition determine the optimal outcome. Clearly explain how you arrive at your answer. What are the market price and quantity under each market structure? c) What are the consumer surplus, producer surplus and total surplus under each scenario? d) Show the reaction function under Bertrand competition. What are the associated price and quantity?
Dear tutor, please solve these True/False Questions. Thank You! Two-part tariffs allow the monopoly firm to capture all of the potential consumer surplus generated by the sale of its product. In a simultaneous game where both players prefer doing the opposite of what the opponent does, a Nash equilibrium does not exist.
QUESTION 10 Consider the markets studied in class: Bertrand duopoly, Cournot duopoly and Monopoly. Rank these markets in terms of their equilibrium price (P), total quantity produced in the whole market (Q) and deadweight loss (DWL). Select True of False for each of the following statements: 1-QBertrand PBertrand III - DWLCournot > DWLMonopoly
1) A monopoly faces a demand curve P(Q) = 120 – 2Q, and has a marginal cost of 60. a. What is profit-maximizing level of output? What is the profit-maximizing price? How much profit the firm will make? b. Assume that a second firm enters the market. The new firm has an identical cost function. If the two firms enter in a Cournot competition, what will be the price in equilibrium? How much will each firm produce in equilibrium? How much profit will each firm make? c. If, instead, the two firms compete in a Stackelberg game (assume the incumbent firm is the leader), what will be the price in equilibrium? How much each firm will produce in equilibrium? How much profit will each firm make? d. Now assume the follower has to pay a fixed cost, f =100 if q>0. Does it change the follower's decision? Assume again they are playing a Stackelberg game.? e. The leader knows that the follower has to pay the fixed cost and decides produce one third more than the quantity found in part c). Does it…
QUESTION 14 Note: No referencing is required for short answer questions. The following market is a duopoly populated only by the companies Alphe and Beta. The pay-off matric immediately below shows the combinations of pricing strategies available Assuming Beta has a first mover advantage in a one-shot game, what is lieky to be the Nash equilibrium? Explain your answer Alpha High price Low price High price 250, 200 Beta 200, 100 Low price 50, 150 100, 250 The numbers represent millions of c in profe (The r
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2. Consider a Cournot duopoly with a demand function of p=10-Q (where Q=9₁ +9₂) and a constant marginal cost of c>0. a) Find the two firms' best-response functions. b) Find the Nash equilibrium output. c) What happens to the equilibrium market price as c increases (assuming that c remains below 10)? d) What happens to the equilibrium market price if c increases above 10?
1. Best responses in a Cournot Oligopoly Firm A and Firm B sell identical goods Total market demand for the good is: The inverse demand function is therefore 1 P(QM) = 780 -Q=780 -0.02222QM 45 QM is total market production (i.e., combined production of firm's A and B. That is: Q(P) = 35, 100- 45P 2M = A +QB As a result, the inverse demand curve for each firm is: P(QA, QB) = 780- -1/32₁-752 45 Unlike the example in class, the two firms have different costs. = 4000A TCA (QA) TCB (QB) = 260QB = 780 -0.022220A -0.02222QB a. Using the demand function and the cost functions above, what is firm A's profit function. b. Using the profit function above and assuming that firm B produces Qg, calculate what firm A's best response is to firm B’s decision to produce QB- Note: Firm A's best response should be a function of B
Consider a simple monopolistic competition industry (many firms) in whicheach firm in the industry has one store. The store costs $200 per week andthe marginal cost is $10 per unit of output in addition to the fixed cost of the store. Hint: Mathematically this problem can be solved just like a monopoly problem. (a) If the typical the demand facing each individual firm is QD = 40−P eachweek, what price will a typical firm in this industry charge? (Hint: IfQD = 40 − P then P = 40 − QD and MR = 40 − 2QD). (b) Is the firm making a positive profit? What is the producer surplus? Whatis the profit after fixed costs? (c) Will new firms enter the market if demand stays the same and new firmsface the same demand and have the same costs? (d) In general, what is the long run profit of an average firm in a monopolistically competitive market.
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