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P= 1,100 - 2Q TC= 20qi Q = q1 + q2 1. Construct the Coutrnot profit function. Differentiate this function and solve for the reaction functions of firm one and firm two. 2. Consider the following general reaction function: qi = Ri (qj)qi=270?q j/2

a. What is the Nash equilibrium level of output for firm i?

b. What is the Nash equilibrium level of output for firm j?

c. What is the Nash equilibrium level of output for the industry?

d. Suppose that firm one were attempting to prevent firm two from entering the market. How much output must firm one threaten to produce in order to cause firm two to stay out of the market?

e. Consider your answer to part d, is this threat credible?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9689801

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