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Describe the Cournot and the Bertrand models. Discuss the main critics to both models.
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- Explain why the equilibrium of the Bertrand model is a Nash equilibrium.an example of a market where a Bertrand model would not be plausibleIn the Salop model the price for a firm in a symmetric equilibrium is p (n) = c + where C is the marginal cost, T is the transportation cost for n consumers and is the distance between two neighbouring firms such that n is the number of firms in the industry. The zero profit condition that determines the number of firms in a free entry equilibrium is (p (n) – c)- – e = 0 where e is the exogenous sunk cost for a firm to enter the industry. Suppose T = 100 and e = 4. The number of firms in the free entry equilibrium is (numeric).
- Which of one the following statements are correct about the Kreps and Scheinkerman (1983) model? A It is a 2-stage dynamic model in which the firms decide on quantities in stage 1 and make pricing decisons with identical constant marginal cost in stage 2. B It is a static model just like the Cournot model. C It is a static model of price competition but the products of the firms are differentiated. D It is a 2-stage dynamic model in which the firms decide on capacities in stage 1 and make pricing decisions with capacity constants in stage 2.Verizon can be viewed as a first mover. Now suppose both ATT and Verizon are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Verizon and q2 is the quantity sold by ATT. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. The Small store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, they can pay $175,000 to construct a Large store that will allow it to sell any number of units at zero marginal cost. Assume Verizon enters and builds a Large store (i.e. chooses to build a Large store L1 at the first stage.) Calculate Verizon's profit for the following cases: a.) ATT chooses not to enter N at the second stage after viewing Verizon's choice. b.) ATT chooses to build a Small store S at the second stage…Verizon can be viewed as a first mover. Now suppose both ATT and Verizon are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p= 900−q1−q2, where p is the market price margin, q1 is the quantity sold by Verizon and q2 is the quantity sold by ATT. To enter the market, a retailer must build a store. Two types of stores can be built: Small and Large. The Small store requires an investment of $50,000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, they can pay $175,000 to construct a Large store that will allow it to sell any number of units at zero marginal cost. Assume Verizon stays out of the potential market (i.e. chooses not to enter N1 at the first stage, q1= 0). Calculate Verizon's profit for the following cases: a.) ATT chooses not to enter N at the second stage after viewing Verizon's choice. b.) ATT chooses to build a Small store S at the second stage…
- Three firms with identical marginal cost of 30 compete in a market with inverse demand of P = 50 - 8Q. If the firms behave as the Cournot model suggests, what is the pass through rate for a change in marginal cost?Consider the linear city (Hotelling's) model we studied in class. Firm 1 and Firm 2 are the two firms in the city. Consider each of the following statements in isolation. Which statement is correct? Group of answer choices Suppose city zoning laws force Firm 1 and Firm 2 to locate at either end of the city. Both firms will therefore set price close to marginal cost Suppose a regulator sets the price for both firms at p; both firms will therefore choose to locate as close to each other as possible If consumers are evenly spread throughout the city, firms are more likely to locate in the middle of the city If transport costs are low, the firms will exploit this by raising price None of the other answers are correctConsider trade relations between the United States and Mexico. Assume that the leaders of the two countries believe the payoffs to alternative trade policies are shown in the image attached. a) What is the dominant strategy for the United States? For Mexico? Explain. b) Define Nash equilibrium. What is the Nash equilibrium for trade policy? c) In 1993, the U.S. Congress ratified the North American Free Trade Agreement, in which the United States and Mexico agreed to reduce trade barriers simultaneously. Do the perceived payoffs shown here justify this approach to trade policy? Explain.
- d) Explain what is meant by the term Paretooptimality.Explain whether the Pareto criterion is an efficiency criterion or a distribution criterion.Is the equilibrium of free competition Paretooptimal? p=320– 2x, e) Market demand for an item is provided by where p is the price of the p= 20+x. item and x is traded quantity. The market supply curve is provided by Find the market equilibrium during free competition and calculate the consumer surplus, producer surplus and socio-economic surplus.Illustrates graphically.12.3. Return to the example used in the text for the Cournot model, where demand was equal to ar Q3D 120 — Р. а. Suppose that instead of costless production, marginal and average costs are constant at МС — АС — 30. Compute the Nash equilibrium quantities, prices, and profits.Select the term that best describes each definition listed in the following table. Tit-for- Prisoner's Nash Equilibrium Payoff Matrix Dominant tat Dilemma Definition Strategy Collusion Strategy Game A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again The event that occurs when agents in a game form an agreement about which strategies to implement A case in which individually rational behavior leads to a jointly inefficient outcome A visual representation of a game showing all possible strategies for each player and all potential outcomes and payoffs