Assignment: Microeconomics
Game theoretic approach toward analyzing output behavior of rivals.
Firms X and Y are duopolists facing the same two strategy choices. They can either tacitly collude or they can compete in a Cournot fashion. The market demand for their product, as well as their respective cost curves are as follows:
C(qx) = C(qy) =50qi (firm X and Y's total cost curves), where i=x or y
MC(qy) =MC(qy) = 50 (firm X and Y's marginal cost curves)
P=500-5Q, (market demand), where Q = qx + qy .
C(q) and have the same cost structure: marginal cost and average cost both=50
• Calculate the respective output levels of each firm if they collude to set monopoly prices.
• Calculate the respective output levels of each firm if they adhere to the Cournot model.
• What four possible output combinations are available in this game?
• Derive the for possible profit outcomes for each firm that arise from producing the four possible output combinations available in this game.
• Use these profit outcomes to construct a 2×2 normal representative matrix for this game.
• Does either firm have a dominant strategy? If so, what is it?
• Is there a Nash equilibrium for this game? If so, what is it?
• Is the outcome of this game a prisoner's dilemma? Please Explain?
Format your assignment according to the give formatting requirements:
a. The answer must be double spaced, typed, using Times New Roman font (size 12), with one-inch margins on all sides.
b. The response also includes a cover page containing the title of the assignment, the course title, the student's name, and the date. The cover page is not included in the required page length.
c. Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.