Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134643175
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
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
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (9th Edition) (Pearson Series in Economics)
Knowledge Booster
Similar questions
- high low high 11, 11 2,18 low 18, 2 10,10 Suppose there are only two firms that sell tablets: Padmania and Capturesque. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its tablets. For example, the lower-left cell shows that if Padmania prices low and Capturesque prices high, Padmania will earn a profit of $18 million, and Capturesque will earn a profit of $2 million. Assume this is a simultaneous game and that Padmania and Capturesque are both profit-maximizing firms. If the firms do not collude, what strategies will they end up choosing? 1. Padmania will choose a low price, and Capturesque will choose a high price. 2. Both Padmania and Capturesque will choose a high price. 3. Padmania will choose a high price, and Capturesque will choose a low price. 4. Both Padmania and Capturesque will choose a low price. True or False: The…arrow_forwardA certain rural village has numerous small farms which raise livestock. There are two large and equally sized landowners, Jimmy and Bob, which produce hay for the farmers’ animals. Below is the daily village demand for hay Suppose, for simplicity, that Jimmy and Bob have the same constant cost structure, so maximizing total revenue maximizes profit. If Jimmy and Bob initially form a cartel, but subsequently succumb to the temptation to cheat on each other, what will be the Nash equilibrium? Jimmy and Bob will each earn a daily profit of $625. Jimmy will earn a daily profit of $700 and Bob will earn a daily profit of $500. Bob will earn a daily profit of $700 and Jimmy will earn a daily profit of $500. Jimmy and Bob will each earn a daily profit of $525.arrow_forwardConsider a situation where two firms, 1 and 2, compete by choosing prices simultaneously. They can either compete (charge a low price) or cooperate (collude, charging a high price). The firms play this competition game repeatedly and indefinitely, using a grim trigger strategy to incentivize cooperation. They use the same interest rate, i , to discount future payoffs. Payoffs are $4,050 when both firms cooperate and $3,600 when they compete. If one firm charge a low price while the other charges a high price, the firm charging the low price gets $7,200, and the other gets zero. Which of the following statements is correct?(a) For any i < 1/7 the firms will cooperate(b) For any i > 1/8 the firms will cooperate(c) For i = 1/9 the firms will be indifferent between cooperating or competing(d) There is no way to sustain cooperation in this scenarioarrow_forward
- Suppose that two firms, Lucky Bird and Full Coop, are the only sellers of seitan buffalo wings in some hypothetical market. The following payoff matrix gives the profit (in millions of dollars) earned by each company depending on whether or not it chooses to advertise: Full Coop Advertise Doesn't Advertise Lucky Bird Advertise 9, 9 15, 3 Doesn't Advertise 3, 15 11, 11 For example, the lower left cell of the matrix shows that if Full Coop advertises and Lucky Bird does not advertise, Full Coop will make a profit of $15 million, and Lucky Bird will make a profit of $3 million. Assume this is a simultaneous game and that Lucky Bird and Full Coop are both profit-maximizing firms. If Lucky Bird chooses to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if Full Coop does not advertise. If Lucky Bird chooses not to advertise, it will earn a profit of million if Full Coop advertises and a profit of million if…arrow_forwardLittle Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company's profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price: True or False: Only Little Kona has a dominant strategy in this game. True or False Which of the following outcomes represent a Nash equilibrium in this case? Check all that apply. Big Brew maintains a high price and Little Kona enters. a.Big Brew maintains a low price and Little Kona enters. b.Big Brew maintains a high price and Little Kona does not enter. c.Big Brew maintains a low price and Little Kona does not enter. Big Brew threatens Little Kona by saying, “If you enter, we're going to set a low price, so you had better stay out.” True or False: Little Kona should not believe the threat. True or False If the two firms could collude and agree on how to split the total profits, what outcome would they…arrow_forwardConsider a situation where two firms, 1 and 2, compete by choosing prices simultaneously. Theycan either compete (charge a low price) or cooperate (collude, charging a high price). The firmsplay this competition game repeatedly and indefinitely, using a grim trigger strategy toincentivize cooperation. They use the same interest rate, i, to discount future payoffs. Payoffsare $4,050 when both firms cooperate and $3,600 when they compete. If one firm charge a lowprice while the other charges a high price, the firm charging the low price gets $7,200, and theother gets zero, but now assume there is a 10% chance that aregulatory agency will give both firms a $1,500 fine in each period if they are caught colluding.Find the condition on the interest rate, i , necessary for sustaining the cooperative equilibrium.Which of the following statements is correct?(a) For any i < 1/7 the firms will cooperate.(b) For any i < 1/11 the firms will cooperate.(c) For any i > 1/11 the firms will…arrow_forward
- Explain Prisoner’s Dilemma. Show how advertising by two competing firms may lead to inefficient distribution of resourcesarrow_forwardLittle Kona is a small coffee company that is considering entering a market dominated by Big Brew. Each company’s profit depends on whether Little Kona enters and whether Big Brew sets a high price or a low price:a. Does either player in this game have a dominant strategy?b. Does your answer to part (a) help you figure out what the other player should do?c. What is the Nash equilibrium? Is there only one?d. Big Brew threatens Little Kona by saying, “If you enter, we’re going to set a low price, so you had better stay out.” Do you think Little Kona should believe the threat? Why or why not?c. If the two firms could collude and agree on how to split the total profits, what outcome would they pick?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningMicroeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage LearningExploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc