Consider the following model of Cournot competition with fixed cost.There are two identical firms, and the inverse demand function is given by5.P(q1, 42)19 – (q1 + 92).Firms have constant marginal cost, but any firm operating in this market (thatis, q; > 0) must pay a license fee F. In particular, firm i's cost function isif qi = 0c:(4;) = { F+4 if qi > 0.(a)Derive the firms' best response functions.(b)For what values of F, if any, will there be a symmetric (pure) Nashequilibrium in which firms produce a positive quantity? What is the Nashequilibrium in that case?(c)For what values of F, if any, will both firms shutting down be theSy anmetric (pure) Nash equilibrium?

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There are two identical firms, and the inverse demand function is given by P(q1, 42) 19 – (41 + 92). Firms have constant marginal cost, but any firm operating in this market (that s, q; > 0) must pay a license fee F. In particular, firm i's cost function is a(m) = { if qi = 0 F+ qi if qi > 0. (a) Derive the firms' best response functions. (b) For what values of F, if any, will there be a symmetric (pure) Nash equilibrium in which firms produce a positive quantity? What is the Nash equilibrium in that case? (c) For what values of F, if any, will both firms shutting down be the Sy anmetric (pure) Nash equilibrium?

There are two identical firms, and the inverse demand function is given by P(q1, 42) 19 – (41 + 92). Firms have constant marginal cost, but any firm operating in this market (that s, q; > 0) must pay a license fee F. In particular, firm i's cost function is a(m) = { if qi = 0 F+ qi if qi > 0. (a) Derive the firms' best response functions. (b) For what values of F, if any, will there be a symmetric (pure) Nash equilibrium in which firms produce a positive quantity? What is the Nash equilibrium in that case? (c) For what values of F, if any, will both firms shutting down be the Sy anmetric (pure) Nash equilibrium?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.4P

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