Ask Question, Ask an Expert


Ask Microeconomics Expert

consider a game between two firms. the timing of the game is as follows:

-firm 1 chooses to make a costly investment in capital. denote the level chosen by K. The cost of investment is r per unit of capital.
-firm 1 and firm 2 decide to make (additional) investments and then produce. each unit of output requires on unit of capital and one unit of labor. labor costs w per unit.

the market demand curve is given by: P=A-B(q1+q2)

there are no other variables costs of production outside of capital and labor. however, each firm must incur a fixed cost of F to produce any positive quantity.

1. what are the marginal costs of firm 2 in period 2?
2. what are the marginal costs of firm 1 in period 2? do they depend on k?
3. if k=0, how is the game different than a standard cournout game?
4. derive the best response function for firm 2 in period 2 assuming that firm 2 produces
5. derive the best response function for firm 1 as a function of q2 and k.
6. Draw a graph showing the best response functions for firm 1 and firm 2 in (q1,q2) space. Show the two resulting equilibrium allocations should the firms produce.
7.prepare out the profit function for firm 2 assuming that K = 0. Repeat for the case where K = ∞. Which profit is higher?
8. Work out parts a-e from the numerical ex Practice Problem 12.2 on p. 279 of the book (this is mostly just plugging in numbers into what you've derived above).
9. describe, in plain English, why the incumbent's firm choice to set K = 32 induces social welfare loss.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945451

Have any Question? 

Related Questions in Microeconomics

Microeconomics - price floorassignmentin a perfectly

Microeconomics - Price Floor Assignment In a perfectly competitive market, the equilibrium price and quantity represent the most efficient operation of that market. Optimum efficiency means that sellers cannot be made be ...

Question - determined that the cost of supplies on hand was

Question - Determined that the cost of supplies on hand was Tk. 1500 and Tk. 1200 of supplies had been used during the month.

Question 1 whether an economy is rich or poor both types of

Question 1.) Whether an economy is rich or poor, both types of economies should optimize or maximize the use of its available capital rather than seeking to mobilize new capital resources. Do your agree with this stateme ...

Questiondescribe the sydney entrepreneur ecosystem by

Question: Describe the Sydney entrepreneur ecosystem by identifying each component and providing a list and one-sentence description of players in each component. Within the category of investors or startups there are to ...

How would a low-cost price leader enforce its leadership

How would a low-cost price leader enforce its leadership through implied threats to a rival? How does a firm become a "low cost" price leader? Discuss the specific type of market structure that implied threat strategy ca ...

Question 1from an economic perspective returns on foreign

Question 1 From an economic perspective, returns on foreign investment are included in the overall measure of trade because financial investments: a) can also be thought of as payments made by the government. b) are a fo ...

Digital media power point presentationdigital media has

Digital Media Power point presentation Digital media has changed the ways ideas, information, and arguments in society are communicated both locally and globally. Individuals and organizations frequently use digital medi ...

Problem set 11 the table below contains typical economic

Problem Set 1 1. The table below contains typical economic data. It show the quantity of a good that is demanded by purchasers and the quantity supplied by producers at various prices. At which price are quantities deman ...

Short-run economic fluctuationscreate a 3 -slide microsoft

Short-Run Economic Fluctuations Create a 3 -slide Microsoft PowerPoint presentation that will be presented to the organization's Executive Committee. The presentation should cover the following items: • Identify the thre ...

Discussion 1long-term investment and cost-benefit analysis

Discussion 1 "Long-Term Investment and Cost-Benefit Analysis" Please respond to the following: · From the scenario for Katrina's Candies, suggest one method in which Herb could use a cost-benefit analysis to argue for or ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate