Calculate equilibrium prices and equilibrium profits

Assignment Help Econometrics

Reference no: EM131541965

Assignment

<Price setting oligopoly>Consider an oligopoly market with two firms producing different products. There is only fixed cost, $20. Demand function for firm 1's product is

q₁ = 18-2p₁ + p₂

and demand function for firm 2's product is

q₂ = 18-2p₂ + p₁

(1) Suppose the two firms act non-cooperatively, calculate equilibrium prices p^∗₁ and p^∗₂, and equilibrium profits π^∗₁ and π^∗₂.

(2) Suppose the two firms decide to collude, calculate equilibrium prices p^col₁ and p^col₂, and equilibrium profits π^col₁ and π^col₂.

(3) Suppose each firm has two choices, either to choose the price calculated in part (1) or the price calculated in part (2).

In other words, firm 1 deviates from collusion and set price as p^∗₁ but firm 2 stays with the price, p^col₂, then what is the π₁ and π₂?

(4) Based on part(1)-(3), set 2x2 game table. In each cell the first number is the profit of firm 1 and the second number is the profit of firm 2. Then find the Nash equilibrium for the game. Is the Nash equilibrium pareto efficient?

Reference no: EM131541965

Questions Cloud

What are the fed''s normal monetary policy tools : What are the Fed's "normal" Monetary Policy tools? What non-standard Monetary Policy tools did the Fed employ during the 2007-2009 recession?

Analyze the buying process for an online product or service : Every product or service has a buying process, even digital products and services. In this assignment, you will research and analyze the buying process.

Compute the quantity that would be produced at given price : Determine the quantity that would be produced at this price and the maximum profit possible. All answers should be rounded to the nearest whole number.

Research what nike has done to improve situation : For this assignment, review the Nike case study, which can be viewed by accessing the following Link Video name: Nike Sweatshops: Behind the Swoosh.

Calculate equilibrium prices and equilibrium profits : Suppose the two firms act non-cooperatively, calculate equilibrium prices p*1 and p*2, and equilibrium profits p*1 and p*2.

Examine and discuss competitive strategies : Appraise costing and financial strategies for manufacturing and service companies.

Company ceo plans to increase production : Cooling tools Inc. is currently producing 877 of small refrigerators per month but the company CEO plans to increase production at a rate of 8.81% per month.

The sexually transmitted infection : Consider strategies for educating patients on the treatment and management of the sexually transmitted infection you identified as your primary diagnosis.

Salary increases at an average annual rate : If your salary increases at an average annual rate of 3.52% how long will it take to reach your goal?

User Account

All Pages