practice_problem2_answers

Give a brief explanation for the difference between

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Unformatted text preview: planation for the difference between the two numbers (1 Point). The profit for firm 1 is higher under the monopoly, this is because firm 1 does not have to react to the quantity produced by firm 2 and so it can produce more quantity at a higher price. f) Going back to the two firm scenario, now assume that firm 2 can set their quantity before firm 1 can act (sequential game). Calculate the new equilibrium quantities for both firms (2 Points). ( ( ) ) g) Now calculate the new profits for each firm and compare them to the simultaneous outcome. Explain very briefly why the profits are different (2 Points). P = 80-4(2.6+6.9) = 42 The profits for firm 1 went down and the profits for firm 2 went up. This is because firm 2 had first mover advantage. 2.) Grim-Trigger Game: Besides you there are three more firms in the market. If you all cooperate you share a monopoly profit of 10,000$. However, if you defect you...
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This document was uploaded on 01/25/2014.

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