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Unformatted text preview: Ex 58.2 (Cournot) • Two firms, linear inverse demand function P=aQ=aq1q2. Firms have constant marginal costs, c1 and c2 • Profit function for firm 1 is: Reaction Functions Graph reaction functions Algebra Ex 59.1 (Cournot 2) • Linear inverse demand P=aQ • Quadratic Cost function: C(qi)=qi2 • What is profit function for firm 1? Bertrand model • Each player does best response to other’s price. • Constant marginal cost • Buyers will purchase only from seller with lowest price. If prices are equal, demands are split. • What can be an equilibrium? Ex 69.1 Bertrand with fixed costs Mixed Strategies Matching pennies Player 2’s best response • If Player 1 plays heads with probability p>1/2, what is Player 2’s best response? • What if p<1/2? • What if p=1/2 Both players’ best responses Hide and seek game...
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 Fall '08
 Charness,G
 Economics, Game Theory, Oligopoly, total output, best response, reaction functions, Linear inverse demand

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