EBK MICROECONOMICS
2nd Edition
ISBN: 9780134458496
Author: List
Publisher: VST
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Question
Chapter 13, Problem 13P
(a)
To determine
The pay-off matrix of a game between two firms.
(b)
To determine
The Nash
(c)
To determine
The existence of a first mover advantage in the quantity-game.
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Consider two firms choosing quantities sequentially in a duopoly setting (i.e. the Stackelberg game). The two firms have identical products. Each firm has no fixed costs, and faces marginal costs equal to 5 plus the quantity it produces (i.e. MC = 5 + q). Market demand is given by Q = 46 - P, where Q is market quantity and P is market price. In equilibrium, how much will the firm that moves first produce?
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