Draw the firms best response functions

Reference no: EM132207551

Question: Two firms are located adjacent to one another and each imposes an external cost on the other: the detergent that Firm 1 uses in it's laundry business makes the fish that firm 2 catches in the lake taste funny, and the smoke that firm 2 uses to smoke its caught fish makes the clothes that firm 1 hands out to dry smell funny. As a consequence, each firms profits are increasing it its own production and decreasing in the production of its neighboring firm. In particular, if q1 and q2 are the firms' production levels then their per-period (stage game) profits are given by

vi(qi , qj ) = (30 - qj )qi - qi2 for i ∈ {1, 2}

(a) Draw the firms' best response functions and find the Nash equilibrium of the stage game. How does this compare to the Pareto optimal stage-game profit levels?

(b) For which levels of discount factors can the firms support the Pareto optimal level of quantities in an infinitely repeated game?

Reference no: EM132207551

Questions Cloud

Categories of waste for different types of organizations : Give examples of the four types of waste and the seven categories of waste for different types of organizations.

Do you think monetary policy is more effective : After you respond to this question I would like you to go back and consider fiscal policy. Do you think monetary policy is more effective than fiscal policy.

Write the predicate formula for the definition of a relation : Write the predicate formula for the definition of a relation on a set is transitive. How are related to the one-step backward for a primal concept we learned?

The fair debt collection practices act applies : The Fair Debt Collection Practices Act applies to anyone who attempts to collect a debt.

Draw the firms best response functions : Draw the firms' best response functions and find the Nash equilibrium of the stage game. How does this compare to the Pareto optimal stage-game profit levels?

Compile process flow analysis on eastern gear : Explain the problems, both current and future, that Eastern Gear faces. Compile a process flow analysis on Eastern Gear.

Why is it important part of the nadler-tushman model : What do we mean by ethics? Why is it an important part of the Nadler-Tushman model? Why should leaders be concerned about this?

Exchange for larger royalty rate on each book sold : Attracts authors who are willing to pay publishing costs and forgo up-front advances in exchange for a larger royalty rate on each book sold.

Which motivation theory have you found : Which motivation theory have you found to be most useful in explaining why people behave in a certain way? why?

User Account

All Pages