"> (solution)- Two identical firms have MC = \$3 (no fixed costs) and face a market demand of QD = 9-P. a) If the firms compete on the basis of price: Paper Detail – Transwriters

### (solution)- Two identical firms have MC = \$3 (no fixed costs) and face a market demand of QD = 9-P. a) If the firms compete on the basis of price:

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The Question

Duopoly: Two identical firms have MC = \$3 (no fixed costs) and face a market demand of QD = 9-P. a) If the firms compete on the basis of price: i. What kind of duopoly is this? ii. If they compete a finite number of times, what price will each firm choose? Why? How much profit will each firm earn ? iii. If they compete an indefinite number of times, under what circumstances can they sell at a higher price? What is this price and how much profit will each earn in a Nash Equilibrium? What is the optimal discount factor? b) If the firms are competing on the basis of quantity (one the leader, other the follower): i. What kind of duopoly is this? ii. What are the firms' reaction functions? iii. Assume one firm enters the market first. Find the profit maximizing price, output, and profit of the leader and the follower .

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##### (solution)- Two identical firms have MC = \$3 (no fixed costs) and face a market demand of QD = 9-P. a) If the firms compete on the basis of price:.zip

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Duopoly:

Two xxxxxxxxx firms have MC = xx xxx xxxxx xxxxxx and face x market demand xx xx = 9-P.

a) If the xxxxx compete on the basis xx xxxxxx

i. xxxx kind xx duopoly is xxxxx

xxxx is xxxxxxxx xxxxxxxx

ii. xx xxxx xxxxxxx a finite xxxxxx xx times, xxxx price xxxx each firm xxxxxxx Why? xxx much xxxxxx will each xxxx xxxxx

Each firm will choose x = MC, xxxxxxx if xx chooses a higher price xxxx xxxxxxx xxxx xxxxx choose x xxxxxxxx lower xxxxx xxx take all xxxxxxxxxx while if xx chooses x xxxxx lower than xx xxxx it will xxxx at x loss.

So, price xxx each xxxx is xx = P2 x \$3.

Everything xxxxx identical, xxxxxxxx produced xx each firm x Q1 x xx x QD/2 = (9 - xxxx x 3

Profit xxx xxxx xxxx x \$3*3 - \$3*3 = 0

iii. xx they compete an indefinite xxxxxx xx xxxxxx xxxxx what xxxxxxxxxxxxx can xxxx xxxx xx a xxxxxx xxxxxx xxxx xx xxxx xxxxx xxx how much profit will each xxxx in x Nash Equilibrium? What xx xxx xxxxxxx xxxxxxxx xxxxxxx

Firms xxx charge x xxxxxx xxxxx xx xxxx xxxxxxxx

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This paper was answered on 19-Jul-2017

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Jul 19, 2017

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