Reference no: EM13895977
Consider the following market game: An incumbent firm, called firm 3, is already in an industry. Two potential entrants, called firms 1 and 2, can each enter the industry by paying the entry cost of 10. First, firm 1 decides whether to enter or not. Then, after observing firm 1’s choice, firm 2 decides whether to enter or not. Every firm, including firm 3, observes the choices of firms 1 and 2. After this, all of the firms in the industry (including firm 3) compete in a Cournot oligopoly, where they simultaneously and independently select quantities.
The price is determined by the inverse demand curve p = 12 − Q, where Q is the total quantity produced in the industry. Assume that the firms produce at no cost in this Cournot game. Thus, if firm i is in the industry and produces qi , then it earns a gross profit of (12 − Q)qi in the Cournot phase. (Remember that firms 1 and 2 have to pay the fixed cost 10 to enter.)
(a) Compute the sub game perfect equilibrium of this market game. Do so by first finding the equilibrium quantities and profits in the Cournot sub games. Show your answer by designating optimal actions on the tree and writing the complete sub game perfect equilibrium strategy profile. [Hint: In an n-firm Cournot oligopoly with demand p = 12 − Q and 0 costs, the Nash equilibrium entails each firm producing the quantity q = 12>(n + 1).]
(b) In the sub game perfect equilibrium, which firms (if any) enter the industry?
|
Production of electricity by utility generates pollution
: Suppose the production of electricity by a utility generates pollution that harms others. Suppose also that Coase bargaining can occur between the utility and the victims of pollution but that the utility has not been legally liable for the damages f..
|
|
Describe the difference in roman civilization
: Describe the difference in Roman civilization during the days of the Republic vs. Roman civilization during the reign of emperors. What factors help transition Rome from a Republic to a dictatorship? Who were the principal figures responsible for th..
|
|
Brief summary of the dia de los muertos
: Brief summary of the Dia de Los Muertos (Day of the Dead) , in 2 pages doubled spaced
|
|
Calculate the total demand function
: Suppose the total market demand is composed by the demands of two consumers A and B. Their individual demand is: QA= 10 − 5P and QB = 4 − P. Calculate the total demand function. List detailed steps. (Hint: remember to check the kink point).
|
|
Compute the sub game perfect equilibrium of this market game
: Consider the following market game: An incumbent firm, called firm 3, is already in an industry. Two potential entrants, called firms 1 and 2, can each enter the industry by paying the entry cost of 10. First, firm 1 decides whether to enter or not. ..
|
|
Coase theorem to hold-how do externalities affect markets
: How do externalities affect markets? Suppose a common resource –wood in a public forest- is being overused because residents consider the benefit of gaining firewood or wood for building but do not account for the cost of deforestation when chopping ..
|
|
Prepare statement of cash flows using the indirect method
: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note. (Amounts to be deducted should be indicated with minus sign. Omit the "$" sign in your response.)
|
|
What is green accounting
: What is “green accounting’? How is the World Bank working to identify the necessary tools for the task? Why is it so difficult to value natural capital?
|
|
Present value of net benefits of us social security
: Compare the expected present value of net benefits of US social security for (a) earlier vs. later generations, (b) men vs. women, and (c) people who were married for over 10 years vs. people who were not.
|