Calculate the production with antitrust laws, Macroeconomics

The following Table summarizes the profits of two firms as a function of their capacity investments levels (you can also interpret these levels as the quantities they produce):

          qB =   0 qB =   1 qB = 2 qB = 3

qA =0   0; 0    0;12       0; 20    0; 18

qA =1  12; 0   10;10    6; 13    4; 12

qA =2  20; 0   13;6      8; 8        3; 4

qA =3  19; 0   12;4      4; 3        0; 0

(a) Suppose that both firms invest simultaneously. How much would they produce if they could credibly commit by signing a binding contract?

Explain briefly.

(b) How much would they produce if, because of antitrust laws, such contract is not legally enforceable? Explain briefly.

(c) Suppose instead that firm A is an incumbent, who invests first, and firm B is a potential new entrant, which knows the level of A's investment when it selects its own level. Provide the extensive form representation of this game and obtain the corresponding perfect equilibrium strategies of both firms. Which are their corresponding equilibrium payoffs? Is this outcome one of blockaded, deterred or accommodated entry?

(d) Consider the scenario described in (c) but now suppose that .rm B has to incur an entry cost which reduces its profit in 5, a cost that can only be avoided by not entering the market (i.e.: when B's production level is 0). Everything else remains as above. Answer question (c) in this new scenario.

Posted Date: 3/22/2013 6:38:54 AM | Location : United States







Related Discussions:- Calculate the production with antitrust laws, Assignment Help, Ask Question on Calculate the production with antitrust laws, Get Answer, Expert's Help, Calculate the production with antitrust laws Discussions

Write discussion on Calculate the production with antitrust laws
Your posts are moderated
Related Questions
Real Exchange Rates (EXCH) is the next variable that will be analysed in this VAR. The reason for including exchange rates in the VAR is that they are an important channel through

How can we answer in Economic terms this questions: Why should the government consider to increase tax on cigarette

Types of Taxes Which a Government can impose on the citizens are as follows: With the theory of taxation covered, we can now move towards the actual menu of the taxes the gover

State about the international capital flow An international capital flow is defined as movement of money for the purpose of speculation or investment between countries. It inc

How do countries grow Economic growth? Economic growth is attaining by increasing: • Quantity of resources by investment • Quality of resources by training as well as R

Q. Describe the working of Commercial banks? Fact that currency inside commercial banks isn't money may strike you as odd though it is an important principle. 100 dollar bill i

The aim of this paper is to observe and interpret the correlations between oil price changes, and changes to key macroeconomic indicators. From this we will be able to observe if t

Inflation in Sweden Figure Inflation in Sweden 1830 - 2010. Source: SCB. There are four aspects which are interesting when we look at inflation data for Sweden

constructing a opportunity set and budget line for $15 lottery ticket and intending on buying a candy bar for $0.75 and peanut bag for $1.50

Explain about the economies and diseconomies of scale. Economies and Diseconomies of Scale: a. There are economies of scale while long-run average total cost refuses as outp