ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
4th Edition
ISBN: 9781285423548
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 3.9PA
To determine
The dominant strategy for the firms in the duopoly market and establishing the equilibrium strategy combination and the Nash equilibrium for the market.
Concept Introduction:
Dominant Strategy- The strategy for a player for which he does better in terms of payoffs/profits irrespective of the strategy of the rival, is said to be his dominating strategy.
Nash Equilibrium- The strategy combination for the two players which is mutually agreed upon for higher returns such that no one player has an incentive to deviate from it unilaterally, is said to be a Nash Equilibrium.
FORD SELLING |
$4,000 | $8,000 | $12,000 |
---|---|---|---|
CHEVROLET SELLING PRICE↓ | |||
$4,000 | 8,8 | 12,6 | 14,2 |
$8,000 | 6,12 | 10,10 | 12,6 |
$12,000 | 2,14 | 6,12 | 7,7 |
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Question 1
Assume the market for a product can be described as a Cournot duopoly with two identical firms. The Nash-equilibrium in this market is that the two firms produce the same quantity. Hence, they will have identical market shares, each will have 50%.
Assume that firm 1 decides to invest in a technology that reduces its marginal costs.
a) What will happen to the two firms market shares? You must explain how you find the answer.
b) What will happen to total production and the price of the product? Again, explain your answer.
Q3
The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration Assume that Canada's production of plastic sheds, which we further assume is an oligopoly. Collusive control over the price of plastic sheds in Canada may permit oligopolists in the industry to:
Multiple Choice
advertise and take advantage of the competitors in the Canadian plastic shed industry.
reduce uncertainty, increase profits, and possibly limit entry of new firms in the Canadian plastic shed industry.
increase product demand, increase product supply, and lower cost in the Canadian plastic shed industry.
achieve economies of scale, reduce costs, and prevent price cheating in the Canadian plastic shed industry.
use new technology, achieve economies of scale, and get government subsidies for the Canadian plastic shed industry.
Chapter 10 Solutions
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
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