What intuitive explanations can you give for observations

Assignment Help Microeconomics
Reference no: EM13870357

Suppose two duopolists produce given differentiated goods. The prices that each obtains in equilibrium depends on the quantities output by each (or, alternatively, the equilibrium quantities demanded for each depends on the prices each charges), according to the inverse demand functions

Pi = A - X1 - bxz and Pz = A -X z - bx1,

for constants A and b. The constant b is restricted to the interval (-1, 1), where b > 0 means that the goods in question are "substitutes" and b 0 means they are "complements." (We use quote marks here because we are not working with precise definitions of these terms; cf. chapter 2.)

(a) Give Cournot, von Stackelberg and Bertrand equilibria for this model.

If you find the algebra getting a bit too thick, solve for equilibrium values (quantities, prices, profits) for the parameters A = 10, k = 1 and b = .9, .5, .1, and -.5. Note that the two firms do better in Bertrand than in Cournot for the case b 0. Can you give an intuitive expla;nation of this?

(b) In the von Stackelberg equilibrium of part (a), the follower has Cournot conjectures and the leader optimizes given the follower's reaction function. We could equally well imagine a case in which the follower had Bertrand conjectures and the leader optimizes given the reaction function so en­ tailed. This is called the Bertrand-van Stackelberg equilibrium. (The von Stackelberg equilibrium in part (a) is then called the Cournot-von Stackel­ berg equilibrium.) Solve for it, at least for the four parameterizations given previously.

(c) In both sorts of von Stackelberg equilibria, the leader has higher profits than if there were no leader at all. Prove that this is so. (It will suffice to demonstrate a weak inequality.)

(d) In Cournot-von Stackelberg for b > 0 and Bertrand-von Stackelberg for b 0, the follower has smaller profits than if there is no leader, while for Bertrand for b > 0 and Cournot for b 0, the follower has larger profits than if there is no leader. What intuitive explanations can you give for these observations?

Reference no: EM13870357

Questions Cloud

Major report assignment embraces many of the business : The Major Report Assignment embraces many of the business communication principles covered in various course modules and is designed to gain insight into an aspect of business communication or the status of your intended career. This assignment has t..
Do you agree or disagree with the district attorney : Do you agree or disagree with the district attorney's statement? Defend your answer in a one-page essay. After you're done, underline the parts of your essay that you think carry rhetorical force and the ones that note any fallacies that you may have..
Public speaking is audience and situation centered : Public speaking is audience and situation centered. Every aspect of speech making, from choosing topics to delivering the actual speech, should be tailored with the audience in mind. For example, if you give a speech about traffic safety to a group o..
What reasons support capitalizing these costs : Waste Management, Inc., regularly incurs costs (e. g., salaries, legal fees, travel) to find new locations for landfill sites. What reasons support capitalizing these costs? What reasons support expensing these costs?
What intuitive explanations can you give for observations : In Cournot-von Stackelberg for b > 0 and Bertrand-von Stackelberg for b 0, the follower has smaller profits than if there is no leader. What intuitive explanations can you give for these observations?
What is the theme and also any secondary themes : Does the Grapes of Wrath by John Steinbeck have a simple, multiple or complex plot? What is the theme and also any secondary themes?
Distinguish between ordinary repair and extraordinary repair : Distinguish between ordinary repairs and extraordinary repairs. How is each accounted for?
These differences between two photographs : These differences between two photographs ---- with the help of Photoshop. should remove must have removed
Psychometric evaluation of test : You are expected to choose 3 different psychological tests and report on the psychometric properties of each test as well as explain why you chose the test. The evaluation should be approximately 2 pages in length for each test. Current APA form..

Reviews

Write a Review

 

Microeconomics Questions & Answers

  Is the marginal social cost of the activity greater

Is the marginal social cost of the activity greater than or equal to the marginal cost to the individual Consequently, without intervention, will there be too little or too much(relative to what would be socially optimal) of this activity

  How large is each individual consumer surplus

How large is each individual consumer surplus? How large is total consumer surplus? Calculate producer surplus by summing the producer surplus generated by each sale.

  Unit-of-account costs arise from the way inflation

Unit-of-account costs arise from the way inflation makes... Menu costs arise from the way inflation: Shoe-leather costs arise from the way inflation...

  Hypothetical state of the economy

Wholesale prices were flat in the last quarter and inventory levels rose slightly - Consumer confidence in the latest survey was unchanged from the previous quarter but down from six months ago.

  Describe securitization process as it associates to housing

1 explain the securitization process as it relates to the housing market. what is the rationale for the establishment

  Calculate the optimal money growth rate needed

Calculate the optimal money growth rate needed for the Fed to hit its inflation target in the long run - Is the Federal funds rate currently too high or too low.

  Write down the problems with unemployment and what are the

what are the problems with unemployment and what are the problems with the way that the government measures

  Define sells bonds-interest rate-money supply

What happens to the price of bonds when the Fed sells bonds? What happens to the interest rate? What happens to the money supply?

  Ethnic communities have success in achieving greater goals

Why ethnic communities have more success in achieving greater goals? Discuss why you think such ethnic or religious minorities have been able to develop greater achievements in certain fields than others?

  Bidder in a sealed-bid auction

Presume you are a bidder in a sealed-bid auction. There are too 5 other bidders in the auction. You believe that each of the other bidders has a value that is equally probable to be anything between 0 and 100. Each one of them has the same belief abo..

  How would you describe stagflation as opposed to inflation

How would you describe "stagflation" as opposed to "inflation"? Does it refer to the presence or absence of economic growth? What, in turn, determines how strong growth will be?

  Strategy successful in terms of increasing profits

Discuss each of the strategies below. what conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd