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Consider a duopoly with differentiated goods in which firms choose prices sequentially. Suppose firm 1 chooses its price p1 first. Then, having observed p1, firm 2 chooses its price, p2. Once both prices are set, consumers demand 10−p1 +p2 units from the good produced by firm 1, and 10 − p2 + p1 units from the good produced by firm 2. Answer the following:
(a) Find the subgame perfect Nash equilibrium (SPE) in this game.
(b) Suppose firms move simultaneously instead of sequentially. What would the Nash equilibrium be? Compared with the SPE of the sequential game, are firms better or worse off if they move sequentially or simultaneously?
A proposed project has indefinite life. The initial cost of the project is $70,000. There will be a onetime investment of $100,000 at the end of Year 6, and an operation cost of $10,000 per year from the end of Year 10 through infinity. If the intere..
Rental equipment is for sale for $110,000. A prospective buyer estimates he would keep the equipment for 12 years and spend $6000 a year on maintaining the equipment. Estimated annual net receipts from equipment rentals would be $14,400. It is estima..
Suppose two competing stores each announce a "low price guarantee", meaning that each store would match the prices of the other store of they were lower. Does providing this guarantee masks it easier or more difficult to overcome the prisoner's dilem..
Which of the following is a possible outcome of a minimum wage imposed by a government??
How are customer expectations today different from customer expectations of say 10-15 years ago? What are some reasons that contribute to that change's expectations regarding the level of customer service received?
A drawback to using the high-low methods is that this method is based on:
Prove that if the weak preference ranking R is transitive then the corresponding strict preference ranking P (using the definitions we gave in class; this is always understood whenever we are talking about indifference and strict preference) is also ..
An electric utility uses natural gas as fuel for a large multi-unit power plant. With all units in-service, for a given hour the plant's fixed cost is $120,000 and its variable cost is $50 per megawatt demanded. What is the hourly demand in megawatts..
Draw what you think are likely shapes of supply and demand curves for the markets listed below. Explain why you drew the graphs the way you did. Explain the slopes of the curves near the competitive equilibrium in your graphs.
The first fundamental welfare theorem gives the conditions under which the private market can lead to a particular efficient outcome. A Pareto efficient allocation is one that yields a fair outcome. A social welfare function summarizes society’s pref..
Identify the following interest rate statements as either nominal or effective: (a) 1% per month compounded weekly; (b) 0.5% per week compounded weekly; (c) effective 15% per year com- pounded monthly;
Suppose the number of officially classified employed persons equals 80 million people; the number of discouraged workers is 12 million people; the number of stay at home spouses is 15 million people; Based on this information, calculate the official..
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