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Unformatted text preview: and Country 2) that produce a homogeneous product for export to a third country. Marginal costs are zero for both firms and the demand for their product is : p= 120- q 1-q 2 Firms behave as Cournot duopolists choosing output simultaneously. Suppose that countries can give their firms an export subsidy of s 1 and s 2 dollars per unit respectively before both firms choose their output. In other words, countries and firms are engaged in a sequential game. In stage 1, countries choose simultaneously their subsidy levels in order to maximize social welfare. In stage 2 , after the subsidy choices are known, both firms choose their output level simultaneously. Calculate the subsidy levels that countries will choose at the SPNE (you are calculating the Nash Equilibrium subsidy levels)....
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This note was uploaded on 05/15/2008 for the course ECON 467 taught by Professor Muniagurria during the Summer '06 term at Wisconsin.
- Summer '06