What is the most you would be willing to pay

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Reference no: EM13154183

The state has announced its plans to license two firms to serve a market whose demand curve is given by P = 200-Q.The cost function ofall potential firms is C = 20q,and the technology is such that once each firms output is chosen, it cannot be altered.

What is the most you would be willing to pay for one of these licenses, if you know that you get to choose your level of output before the other licensee does, also knowing that your choice is observable by the other licensee?

HINT: This is a two-stage game in which you, essentially, get to be a Stackelberg leader; and you will not be willing to pay more than your profit for the license.

Reference no: EM13154183

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