Answered: THIS IS A MULTIPLE ANSWER QUESTION. IT…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.6IP

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Transcribed Image Text:THIS IS A MULTIPLE ANSWER QUESTION. IT MAY HAVE MORE THAN ONE CORRECT ANSWER. Consider a homogeneous product industry with inverse demand given by p(Q) = 100 - Q. There are two firms competing in quantities. Timing: In stage 1 Firm 1 chooses its quantity, denoted by q1. Then in stage 2 Firm 2 chooses its quantity, denoted by q2. The cost function of Firm 1 is TC(q) = 20g. The cost function of Firm 2 is TC(q) = 100 + 20g if q > 0, TC(q) = 0 if q = 0. Which of the below is a Nash equilibrium that also satisfies the following condition: given q1, Firm 2 will choose the best-response q2 in stage 2. (Remember: Nash equilibrium is a strategy profile, which means one strategy for each firm, such that each firm's equilibrium strategy is a best response to the other firm's equilibrium strategy. Here Firm 1's strategy is a value for q1, Firm 2's strategy is a function that determines the value of q2 for each possible value of q1 Firm 1 may choose.) Firm 1: q1 = 60, Firm 2: q2 = 40 - 0.5q1 if q1 < 60, q2 = 0 if q1 ? 60. Firm 1: q1 = 40, Firm 2: q2 = 40 - 0.5q1 if q1 < 80, q2 = 0 if q1 ? 80. Firm 1: q1 = 80/3, Firm 2: q2 = 80/3 if q1 < 80, q2 = 0 if q1 ? 80. Firm 1: q1 = 100, Firm 2: q2 = 40 - 0.5q1 if q1 < 80, q2 = 0 if q1 ? 80. None of the above

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