Economics > QUESTIONS & ANSWERS > ECON 444 Homework 4 Problem Set 4 Answers (Penn State University), Latest Questions and Answers with (All)

Also available in bundle ( Click Here )

ECON 444 Homework 4 Problem Set 4 Answers (Penn State University), Latest Questions and Answers with Explanations, All Correct Study Guide, Download to Score A

Document Content and Description Below

ECON 444 Homework 4 Problem Set 4 Answers (Penn State University), Latest Questions and Answers with Explanations, All Correct Study Guide, Download to Score A Econ 444 (Corporate Economics), Spring ... 2021 Problem Set #4 Problem 1. (True/False). For each statement, assert whether it is true of false and explain your answer. 1. In a one shot sequential move pure Betrand game with two identical firms, there can be more than one subgame perfect Nash equilibrium. 2. In a Cournot-Stackelberg game with identical firms, the equilibrium price is invariant to which firms moves first. 3. In a Bertrand-Stackelberg game, the follower firm has a second mover advantage because prices are strategic substitutes. 4. It is possible to support a collusive outcome in a finitely repeated simultaneous Bertrand game. Problem 2. Two Sandwich shops, Early Sandwich (ES) and Best Sandwich (BS), sell identical sandwiches and are located side-by-side in State College. Every morning, ES opens at 8am and advertises its sandwich price pES on a billboard outside the store. BS opens at 9am, observes ES’s daily price, and advertises its daily prices pBS on its store’s window. BS faces a unit cost of 4 while ES faces a unit cost of 3 for making a sandwich. The market (inverse) demand for sandwiches is P = 60-Q. 1. Suppose ES and BS operate for only one day. That is, they open, sell their Sandwiches, collect profits, and never open again. Write down BS’s best re- sponse function, the equilibrium strategy profile, and the equilibrium prices, quantities, and profits in this market. Is this outcome (Pareto) efficient? 2. Suppose now ES and BS get one week (e.g. 7 days) to operate. After that week they both must shut down and move on. Both firms care about the total profits earned during the week. How would daily prices change? How much more profit do they earn? 3. The owner of ES is tired of always having to post prices first. Would she do better if she waited until 9am to post her price and open the store? Why or why not? Explain. 4. At the end of the week, a new town ordinance lets ES and BS stay and sell sandwiches forever, however they must now open at the same time (e.g. set prices simultaneously each day). Moreove, BS has made a new contract with ES’s supplier so that they now both face a unit cost of $3 for making a sand- wich. Lastly, unlike previously, both firms discount future profits at a rate δ. Under what conditions does there exist an equilibrium in which both firms make positive profits. Derive one such equilibrium, noting both the strategies, equilibrium prices, discounted profits, and quantities sold in each period. [Show More]

Last updated: 2 years ago

Preview 1 out of 28 pages

Buy Now

Instant download

We Accept: