Pearson eText Microeconomics -- Access Card
2nd Edition
ISBN: 9780136849513
Author: Acemoglu, Daron, Laibson, David, List, John
Publisher: PEARSON
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Question
Chapter 14, Problem 3P
(a)
To determine
The reason for no Nash equilibrium to exist when price is set at
(b)
To determine
The reason for price setting at
(c)
To determine
The reason for Nash equilibrium to not exist when both firms set prices according to respective marginal costs.
(d)
To determine
The Nash equilibrium, equilibrium price and the firm that ends up selling.
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Macmillan Learning
Big Bear and Coffeebean are coffee chains in a metro area deciding on a pricing strategy. Use the payoff matrix below to answer
the questions. Assume that both firms have complete information on each other's payoff structure and that they choose their
pricing strategies simultaneously.
Big Bear
High price
Low price
$6 million
$3 million
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Coffeebean
$6 million
$8 million
$8 million
Low price
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What is the Nash equilibrium in this game?
the lower right quadrant
If this is a repeated game, what is one strategy the firms could employ to penalize noncooperative behavior?
Suppose that Fizzo and Pop Hop are the only two firms that sell orange soda. The following payoff matrix shows the profit (in millions of dollars) each
company will earn depending on whether or not it advertises:
Fizzo
Advertise
Doesn't Advertise
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10, 10
2, 18
Pop Hop
Doesn't Advertise
For example, the upper right cell shows that if Fizzo advertises and Pop Hop doesn't advertise, Fizzo will make a profit of $18 million, and Pop Hop will
make a profit of $2 million. Assume this is a simultaneous game and that Fizzo and Pop Hop are both profit-maximizing firms.
18, 2
11, 11
If Fizzo decides to advertise, it will earn a profit of $
advertise.
If Fizzo decides not to advertise, it will earn a profit of $
advertise.
If Pop Hop advertises, Fizzo makes a higher profit if it chooses
If Pop Hop doesn't advertise, Fizzo makes a higher profit if it chooses
Both firms will choose to advertise.
million if Pop Hop advertises and a profit of $
O Fizzo will choose to advertise and Pop Hop…
Economics
Reference the following information about the market demand function for questions 1 to 15. These questions are on different types of market structures – monopoly, perfect competition, Cournot oligopoly market, and the Stackelberg oligopoly market.
The market demand function is given the following equation: P = 2000 – Q where Q is the industry’s output level.
Suppose initially this market is served by a single firm. Let the total cost function of this firm be given the function C(Q) = 200Q. The firm’s marginal cost of production (MC) is equal to the firm’s average cost (AC):
MC = AC = 200.
Now suppose the two firms engage in Stackelberg market competition. Assume firm 1 is the leader (first-mover) and firm 2 is the follower firm (second-mover).
Marginal profit function of Stackelberg leader: 900−Q1
QUESTION 14:
What will be the market price in this Stackelberg model?
Group of answer choices
$480
$650
$720
$900
QUESTION 15:
Can you calculate the profit earned by the…
Chapter 14 Solutions
Pearson eText Microeconomics -- Access Card
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