Slide33 + 43 Answerkey Powerpoint Obligopoly

Slide33 + 43 Answerkey Powerpoint Obligopoly - marginal...

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Slide 33 solution Firm A: taking q B as given, maximize profit by choosing q A . Similarly, we can find Firm B’s best reply function: q B =1/4 -1/2 q A Solve for equilibrium q A and q B from the two best reply functions. q A =q B =1/6. P=2/3. Slide 43 Solution Firm A makes output decision first, firm B makes output decision later. Using backward induction, we look at Firm B’s optimal strategy first. Firm B: knowing q A , chooses q B to maximize profit. Firm B will choose output such that
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Unformatted text preview: marginal revenue equals marginal cost. MR B =1-q A-2q B =MC B =1/2 q B =1/4-1/2 *q A (Firm Bs best reply). Firm A: predicting that q B =1/4 -1/2 q A , firm A knows that P=1-q A-q B =3/4-1/2 q A . To maximize profit, Firm A will choose output such that marginal revenue equals marginal cost. MR A =3/4 q A =MC A =1/2. q A =1/4, q B =1/4-1/2*q A =1/8. P=5/8....
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This note was uploaded on 06/16/2011 for the course ECON 110 taught by Professor Tan during the Spring '07 term at HKUST.

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