Problem_set_8 - Kaushik Basu Spring 2008 Econ 367 Game...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Kaushik Basu Spring 2008 Econ 367 Game Theoretic Methods Problem Set 8 1. Two firms, producing the same good, face the following inverse demand function: ) ( 10 2 1 x x p + - = where x i is the output produced by firm i and p is price in dollars. Firm 2 can produce this good incurring zero cost. Firm 1 can also produce this good with no per-unit cost but must incur an initial sunk cost of k dollars in order to start production. Firm 1 chooses x 1 in period 1 and then firm 2 (after seeing 1's choice) chooses x 2 in period 2. Describe the subgame perfect equilibrium for cases where (a) k = 0, (b) k = 15 and (c) k = 20. 2. Two firms face the following inverse demand function: ) ( 12 2 1 x x p + - = Each firm i's total cost of production is given by: . 2 , 1 , 3 = = i x C i i (a) How much will each firm produce in a Cournot equilibrium? (b) Suppose this is a two-period game. In period 1 firm 1 announces how much it will produce, x 1 ; and in period 2 firm 2 announces how much it will produce, x
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Problem_set_8 - Kaushik Basu Spring 2008 Econ 367 Game...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online