Firm 1 and firm 2 compete with each other by choosing quantities. The market demand is givenby400-Q, if Q< 400P(Q)="otherwisewhere Q = 91 +92. Firm 1 has a cost function C₁ (91) = 40q1, and firm 2 has a cost functionC2 (92) = 5092. Answer the following questions.1) Assume the game lasts only one period. Compute the approximate equilibrium profits forboth firms.2) If firm 1 becomes the monopolist on this market, what quantities will firm 1 choose to produce?Denote this quantity as QM.3) One possible strategy is that each firm produces. This gives a more Pareto efficientoutcome. But given that firm 2 produces this quantity, how much does firm 1 want toproduce?4) Assume this game is infinitely repeated and the interest rate in this economy is r. For whatvalues of r the strategy in (3) is sustainable by using a "Grim Trigger" strategy?

Here demand function=P=400-Q=400-q1-q2 cost function of firm1=TC1=40q1 cost function of…

Firm 1 and firm 2 compete with each other by choosing quantities. The market demand is given by if Q< 400 400-Q, P(Q) {40 " otherwise = 40q1, and firm 2 has a cost function where Q = 91 +92. Firm 1 has a cost function C₁ (91) C2 (92) = 5092. Answer the following questions. =

Firm 1 and firm 2 compete with each other by choosing quantities. The market demand is given by if Q< 400 400-Q, P(Q) {40 " otherwise = 40q1, and firm 2 has a cost function where Q = 91 +92. Firm 1 has a cost function C₁ (91) C2 (92) = 5092. Answer the following questions. =

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.7P

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