Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 15, Problem 14P
To determine
To explain:
The nature of the mutual interdependence between the two firms. Whether a Nash equilibrium is evident.
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Students have asked these similar questions
Problem 5.1. The inverse market demand for printer paper is given by P = 400 – 2Q. There are two firms
who compete to produce this paper, each with a marginal cost of production equal to c = 40 over a large
range of output (ie, assume constant marginal cost). The two firms compete in quantities, in other words
they each simultaneously choose a quantity to produce (Cournot competition).
Derive the Cournot-Nash equilibrium of this game. Please write final answers in the boxes, showing work in
blank areas.
(a) The reaction function for each firm.
91 (92):
92 (91)
(b) Optimal output q for each firm.
92
=
р
=
=
π1 =
(c) Market price (from demand curve).
(d) Firm profits.
92
=
π2 =
O Cell A
O Cell C
O Cell E
O Cell I
None of the above
Two firms, Snow Kings and Ski Express, at Denver International Airport have franchises to
carry passengers to and from the mountains. These two firms compete through advertising. Their
payoff matrix is below. Profits per customer are represented in the following format (Snow
Kings, Ski Express
Snow Kings
Advertise
Don't Advertise
Advertise
25, 15
15, 20
Ski Express
Don't Advertise
30,0
40,5
What combination of strategies achieves the Nash equilibrium in this game?
a) 25,25 (Advertise, Advertise)
b) 15,20 (Advertise, Advertise)
c) 25,0 (Advertise, Don't Advertise)
d) 40,5 (Advertise, Don't Advertise)
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