Two firms, A and B, have complete control of the supply of mineral water andboth have zero costs.
Question # 00213544
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Updated on: 03/05/2016 02:43 AM Due on: 04/04/2016
Two firms, A and B, have complete control of the supply of mineral water andboth have zero costs. Their best reply functions (BRP) are given by:qA= 10-.5qB qB= 10-.5qA
a) Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph.
b) The marginal revenue function facing a monopolist is given by:MR = 200–20QDemonstrate that firms A and B have an incentive to cooperate and maximizejoint profits.
c) Assume each firm can select two output strategies —specifically the strategiesfrom parts (a) and (b). Denote these alternative output strategies qa and qb.Compute and payoff/profit matrix showing the four possible outcomes.
d) Does the game that you developed in preceding part have a determinateoutcome— i.e., is there a dominant strategy? Explain.
a) Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph.
b) The marginal revenue function facing a monopolist is given by:MR = 200–20QDemonstrate that firms A and B have an incentive to cooperate and maximizejoint profits.
c) Assume each firm can select two output strategies —specifically the strategiesfrom parts (a) and (b). Denote these alternative output strategies qa and qb.Compute and payoff/profit matrix showing the four possible outcomes.
d) Does the game that you developed in preceding part have a determinateoutcome— i.e., is there a dominant strategy? Explain.
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Solution: Two firms, A and B, have complete control of the supply of mineral water andboth have zero costs.