Exercise # 3. Rather than raising its rival's cost, an incumbent can try to lower its own costs to become more aggressiv

[answerhappygod]

Exercise 3 Rather Than Raising Its Rival S Cost An Incumbent Can Try To Lower Its Own Costs To Become More Aggressiv 1 (64.22 KiB) Viewed 42 times

Exercise # 3. Rather than raising its rival's cost, an incumbent can try to lower its own costs to become more aggressive post-entry. Suppose a market with two firms, 1 and 2, facing the inverse demand p(Q) = 10- Q where Q = 9₁ +92. The two firms incur a marginal cost of production c₁ = C₂ = 2, produce a homogeneous good, and are Cournot competitors. Q9) Determine firm 1's quantity at the Cournot equilibrium. Q10) Assume firm 1 can obtain better prices for its inputs than firm 2 by pressuring suppliers because of its dominance. While firm 2's marginal cost remains at c₂ = 2, firm 1's marginal cost decreases to c₁ = 0. On the same graph as the one used to answer Q4, show the effect of firm 1's strategy on the firms' best-response functions. Q11) Determine firm 1's quantity at the new Cournot equilibrium. • Q12) The strategy adopted by firm 1 should be considered A) Anti-competitive - B) Pro-competitive 47