Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
9th Edition
ISBN: 9780134143071
Author: PINDYCK, Robert, Rubinfeld, Daniel
Publisher: PEARSON
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Question
Chapter 13, Problem 8E
a)
To determine
Output price and profit
b)
To determine
First mover advantage output and profit
c)
To determine
Cournot equilibrium in series of rounds game
d)
To determine
Competitor as the first mover in series of rounds game
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Olivia is thinking about opening a new bakery (the entrant). There is already a bakery open in her neighborhood (the incumbent), and the owner of the incumbent bakery makes it clear that if Olivia enters the market, they will cut their prices in an attempt to drive the new bakery out of business. Based on the payoff matrix below, is the incumbent’s threat credible? That is, if Olivia opens a new bakery, will the incumbent actually lower their prices?
Note: the entrant chooses the row, the incumbent chooses the column
High price
Low price
Enter
1, 2
-1, 1
Don’t enter
0, 10
0, 1
a.
Yes, the threat is credible
b.
No, the threat is not credible
Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd = 10,000 – 100P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $25 per cubic yard. Suppose that Joe and Rebecca compete in quantities and competition in this market is described by Cournot model. What are Joe and Rebecca’s Nash equilibrium outputs? What is the resulting price? What do they each earn as profit? How does the price compare to the marginal cost?
Joe and Rebecca are small-town ready-mix concrete duopolists. The market demand function is Qd = 10,000 – 100P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $25 per cubic yard. Suppose that Joe and Rebecca compete in quantities and competition in this market is described by Cournot model. What are Joe and Rebecca’s Nash equilibrium outputs? What is the resulting price? What do they each…
Using the Figure below, consider now that the entrant, if fought, has the possibility of withdrawing from the industry (at a loss of 1 for the entrant and again of 8 for the incumbent), or staying (at a loss of 5 for each player). What is the equilibrium of this game? Discuss if the entrant is better off with or without the ability to withdraw.
Chapter 13 Solutions
Myeconlab With Pearson Etext -- Access Card -- For Microeconomics
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