All question are with regards to the following set up. There are two firms A and B. Firms compete in a Cournot Duopoly in Karhide. They set quantities A and qв. Inverse demand is P(9A + 9B) = 18 - 9A-9B and costs are C(q) = 3 * q for both firms. Firm B is a domestic firm (in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B produces and sells qв units, firm B receives a payment of s *qg from the government.) You must show your work at each step, unless the questions is followed by "No work required." (2) Assume that s = 0 (there is no subsidy.) (a) Write down firm A's profit function. (No work required.) (b) Find each firm's best response function. (You may do this directly or by setting s to zero in your expressions from (1b). (c) Solve for equilibrium outputs (9A, 93). You may either use the symmetry in this problem to assume a symmetric solution, or solve for firm B's best response and solve the two best responses simultaneously. (I recommend the first approach.)
All question are with regards to the following set up. There are two firms A and B. Firms compete in a Cournot Duopoly in Karhide. They set quantities A and qв. Inverse demand is P(9A + 9B) = 18 - 9A-9B and costs are C(q) = 3 * q for both firms. Firm B is a domestic firm (in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B produces and sells qв units, firm B receives a payment of s *qg from the government.) You must show your work at each step, unless the questions is followed by "No work required." (2) Assume that s = 0 (there is no subsidy.) (a) Write down firm A's profit function. (No work required.) (b) Find each firm's best response function. (You may do this directly or by setting s to zero in your expressions from (1b). (c) Solve for equilibrium outputs (9A, 93). You may either use the symmetry in this problem to assume a symmetric solution, or solve for firm B's best response and solve the two best responses simultaneously. (I recommend the first approach.)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter12: Price And Output Determination: Oligopoly
Section: Chapter Questions
Problem 2E
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Please do question 2's a b and c please thank you!
Transcribed Image Text:All question are with regards to the following set up. There are two firms A and B. Firms
compete in a Cournot Duopoly in Karhide. They set quantities A and qB. Inverse demand is
P(9A + 9B) = 18 - 9A-9B and costs are C(q) = 3 * q for both firms. Firm B is a domestic firm
(in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages
in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B
produces and sells qв units, firm B receives a payment of s* qg from the government.)
You must show your work at each step, unless the questions is followed by "No work required."
(2)
Assume that s = 0 (there is no subsidy.)
(a) Write down firm A's profit function. (No work required.)
(b) Find each firm's best response function. (You may do this directly or by setting s to zero in
your expressions from (1b).
(c) Solve for equilibrium outputs (993). You may either use the symmetry in this problem to
assume a symmetric solution, or solve for firm B's best response and solve the two best responses
simultaneously. (I recommend the first approach.)
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