{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

04 final 10 - Promote 900 900 Nash Promote Flat Not Promote...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Promote 900, 900 Nash Promote Flat Not Promote 1300, 800 x Promote ot Promote Flat <: Not Promote 1000, 1000 x 800, 1300 The Nash equilibrium in this sequential game with Sharp as the leader is for both stores to promote, which is the same outcome as that when the game is played in normal form. The same result would emerge if Flat was the leader. Therefore, there is no first-mover advantage for Sharp. (3 marks) g) In the sequential game for part (i), would Sharp be better off or worse off if the cost of promotion for both stores were equal to $450 rather than to $300. Briefly explain. If the cost of promotion for both stores was $450 rather than $300, then the game tree looks like Promote Flat <: Promote 750, 750 x Not Promote 1150, 800 Nash Promote 800, 1 150 ot Promote Flat Not Promote 1000, 1000 x Sharp earns $1150 in this game versus $900 in the previous game (with $300 cost of promotion). Therefore, Sharp is better off with the higher cost of promotion. Two marks for correctly identifying the new equilibrium (it is not necessary for a new game tree to be drawn to calculate the new equilibrium point). On mark for indicating that the higher cost eliminated Flat’s dominant strategy (i.e., Flat now chooses the opposite strategy as that chosen by Sharp), and thus Sharp obtains the first-mover advantage. Question 14: Suppose that firms A and B are the only two producers of bread and that they compete in quantities. Their products are identical. A’s fixed cost of production = $ 20 and B’s fixed cost of production is $ 15, and both have marginal cost equal to $3. The demand function for bread is Q = 100 — lOP. The two firms compete for one period only. (10 marks) (a) Fill out the following table of equilibrium values, showing your work clearly in the space below the table: Quantityproduced by firm A (2.5 marks) 23.33 Quantitygoduced by firm B (2.5 marks) 23.33 Market Price (2 marks) $ 5.33 Profits of firm A (1.5 marks) $ 34.36 Profits affirm B (1.5 marks) $ 39.36 11 ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern