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(Cournot Duopoly Revisited) Consider the Cournot duopoly model where the (inverse) demand is P (Q) = a Q. The two firms now have asymmetric marginal costs: c1 for firm 1 and c2 for firm 2.
(a) What is the Nash equilibrium if 0
(b) What is the Nash equilibrium if 0 a + c1?
Formulate the following situation as an extensive form game (using a game tree) and solve it using backward induction. What will Bingo choose to do in equilibrium, and what will Canal's response be?
You would like to know what the marginal costs and marginal benefits of this decision are. That should depend on factors like:
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Repeat the above calculations but with highly skilled workers having a q value of 0.6 and low skill workers 0.5. How do your results differ from those in part a?
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1.Why are both the price elasticity of demand and the price elasticity of supply likely to be greater in the long run?
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