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.

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.

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

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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Which of one the following statements are correct about the Kreps and Scheinkerman (1983) model? It is a static model just like the Cournot model. 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. 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. It is a static model of price competition but the products of the firms are differentiated.
Which of one the following statements is correct? A. The Cournot model is simply wrong because in the real world firms do make pricing decisions. B. Only the Bertrand model can be right because in the real world firms do make pricing decisions. C. The Cournot model can be justified as a reduced form of a dynamic game in which firms make decisions on quantities, which are followed by pricing decisions. D. The Cournot model are justified because in all real world markets there are auctioneers who play the function of clearing the markets.
Which of the following statements is correct? a. In the Stackelberg model, the first mover’s ability to commit may afford it a big strategic advantage. b. In incomplete information games, another possible first-mover strategic advantage is the ability to signal. c. The incomplete-information model of entry deterrence has been used to explain why a rational firm might want to engage in predatory pricing. d. All of the above.
Which one of the following statements is correct? A. The Bertrand model must be wrong because there exists a Nash equilibrium for the Cournot model. B. The Cournot model must be wrong because there exists a Nash equlibrium for the Bertrand model. C. The result which is referred to as the "Bertrand paradox" cannot be a Nash equilibrium outcome. D. The result which is referred to as the "Bertrand paradox" is nevertheless a Nash equilibrium outcome.
Consider the following Cournot model. The inverse demand function is given by p = 30 –Q, where Q = q1 + q2. Firm 1’s marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) Answer the following questions. (4points)DeriveFirm1andFirm2’sreactionfunctions, respectively. (2 points) Solve the Nash equilibrium (q1N, q2N). (2points)Whatistheequilibriumpriceandwhatistheprofitlevel for each firm? (3 points) Suppose there is a market for the technology used by Firm 2. What is the highest price that Firm 1 is willing to pay for this new technology? (3points)Nowlet’schangethesetupfromCournotcompetitionto Bertrand competition, while maintaining all other assumptions. What is the equilibrium price? (3 points) Suppose the two firms engage in Bertrand competition. What is the highest price that…
Consider a market with four firms. Firms A and B have a marginal cost of $7. Firm C has a marginal cost of $11. Firm D has a marginal cost of $5. What occurs if the firms compete in the Bertrand model? Group of answer choices None of the other answers are correct. Firm D will capture the entire market with a price of $6.99. All four firms will each have one quarter of the market with a price of $11. Firms A and B will each have half the market with a price of $7.00. Firm D will capture the entire market with a price of $5.00.
Consider a homogeneous good industry (such as an agricultural product) with just two firms and a total market demand Q = 400−P, so the inverse demand is P = 400 − Q. Suppose both firms have a constant marginal cost equal to $100 per unit of output and a fixed cost equal to $10,000. Suppose that the firms compete by simultaneously setting price, not simultaneously setting output. That is, suppose we consider the Bertrand model instead of the Cournot. Show that the two firms must earn lower profits. Hint: Create a two-by-two game using two different prices for each firm. One price should be the Cournot price (the Cournot is price of the good when firms produce the Cournot output you found above, which is 100 and 100, so the price is P = 400 − 100 − 100 = 200). The second price should be under 200 and over 150. Then show that the Nash equilibrium of this game is the lower of the two prices. When calculating profits, assume that each firm has equal sales (one half of demand) if they charge…
You are a medical group manager. Some market research has suggested that the price elasticity of demand for the services of your physicians is −4.1. The marginal cost for the average unit of physician service in your group is approximately $536. A. Using the economic pricing model formula, calculate your profit-maximizing price for each unit of physician services. B. Suppose that your medical group is considering new contracts with two particular businesses to provide physician services to their employees. If the marginal cost for each service unit is the same as with the rest of your customers, but the price elasticity of demand from the first new business customers is −0.9, and the second group of business customers is −4.4, how would that change your profit-maximizing price for each of the new groups? Would you recommend that your medical group obtain contracts with both new groups, just one of them or none? Explain your reasoning. C. In order to maximize your profits, what specific…
Consider Hotelling's model (a street of length one, consumers uniformly distributed along the street, each consumer has a transportation cost equal to 2t, where t is the distance traveled). Suppose there are two gas stations, one located at 1/4 and the other located at 1. (a) Calculate the demand functions for the two firms. (b) If the two gas stations compete in prices and settle at a Nash equilibrium, will they charge the same price for gasoline? (assume that production costs are zero, that is, firms maximize revenue).
Consider a homogeneous good industry (such as an agricultural product) with just two firms and a total market demand Q = 400−P, so the inverse demand is P = 400 − Q. Suppose both firms have a constant marginal cost equal to $100 per unit of output and a fixed cost equal to $10,000. One simple way to depict rivalry in a duopoly (2 firms) is the Cournot model. This model is reasonable in agricultural markets where firms choose production (plantings) in advance and the market price is determined later after the crop is harvested. In the Cournot model we imagine that the two firms simultaneously choose their production or quantity, and that demand (market clearing) determines the price given each firms’ quantity. (a) Suppose (hypothetically) that the second firm produces 0 units, and the first firm anticipates this, so the first firm is the only seller. How much will the first firm produce (in this case the first firm acts like a monopolist and sets output where MR = MC)? Hint: The first…
Consider a homogeneous good industry (such as an agricultural product) with just two firms and a total market demand Q = 400−P, so the inverse demand is P = 400 − Q. Suppose both firms have a constant marginal cost equal to $100 per unit of output and a fixed cost equal to $10,000. One simple way to depict rivalry in a duopoly (2 firms) is the Cournot model. This model is reasonable in agricultural markets where firms choose production (plantings) in advance and the market price is determined later after the crop is harvested. In the Cournot model, we imagine that the two firms simultaneously choose their production or quantity and that demand (market clearing) determines the price given each firms’ quantity. (a) Suppose (hypothetically) that the second firm produces 0 units, and the first firm anticipates this, so the first firm is the only seller. How much will the first firm produce (in this case the first firm acts as a monopolist and sets output where MR = MC)? Hint: The first…
Consider the following Stackelberg model. There are two firms in the market. Firm 1 is the leader and firm 2 is the follower. Firms can decide to produce low or high. The extensive-form representation below presents the profits depending on production decisions of firms. The first value is profit of firm 1 and second value is profit of firm 2 depending on their production decisions. Solve using backward-induction. What are the optimal production levels of both firms? Describe how you found the optimal strategy using words.see the image

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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.