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# OSU Econ 462: Managerial Economics Problem Set #4 Professor Patrick Emerson ONLY QUESTIONS 1-4 ARE DUE: In-Class, Wed., June 1. 1. What are 'hurdles'...

I need help answering question 3 in this problem set. All three parts have confusing algebra that I dont understand.

OSU Econ 462: Managerial Economics Problem Set #4 ONLY QUESTIONS 1-4 ARE Professor Patrick Emerson DUE : In-Class, Wed., June 1. 1. What are ‘hurdles’ and how do they work as a price discrimination mechanism? 2. In the following normal-form game: i. Identify all of the D.S.E. and N.E., if any. ii. If Player 2 is a Stackelberg leader and gets to pick first, what will be the outcome of the game (S.P.N.E.)? Player 2 L C R Player 1 T 6,2 7,9 1,4 M 9,5 4,3 3,1 B 3,2 5,1 4,4 3. Suppose only two firms make commercial airplanes: Airbus (A) and Boeing (B). Together they face the following market demand functions and individual cost functions: Demand: X 200 p = where B A x x X + = Total Costs: A A A x 60 ) x ( c = , and B B B x 40 ) x ( c = a. Find the best response functions for both firms and draw them in a diagram with x A on the horizontal axis and x B on the vertical axis. b. Find the Cournot-Nash equilibrium solution; i.e. price ( p ), quantities ) , , ( B A x x X , and profits ) , , ( int B A jo Π Π Π . Show all of your work. c. Suppose Boeing gets to set its quantity first (i.e. it is a Stackelberg leader) – what will be the new equilibrium quantities?
2 4. In the spate of oil company mergers in the early 2000s, the federal government made some of the companies sell some of their refineries due to fear about market concentration leading to high prices, but were relatively unconcerned about their retail gas stations. Using the Bertrand Model of price competition explain: a. Why the Bertrand model is a good one to use to describe retails gas (why the assumptions of the Bertrand model match retail gas). b. Why the government would be relatively unconcerned about reduced competition in retail gas. 5. Consider the normal form game given below where a pair of duopolists are trying to decide on prices to charge for their goods. The resulting profits are given in the payoff matrix where Firm 1’s payoffs are listed first. Firm 2 Prices 10 15 20 Firm 1 10 20,20 28,18 35,15 15 18,28 30,30 45,25 20 15,35 25,45 40,40 a) Solve for the N.E. b) Describe a strategy that can sustain collusion for one period if the game is repeated two periods and show that it is a SPNE strategy if the discount factor is one (i.e. no discounting).

Suppose only two firms make commercial airplanes: Airbus (A) and Boeing (B). Together they
face the following market demand functions and individual cost functions: Demand: p = 200 − X
where A B...

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