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Suppose there are two firms that produce an identical product. The demand curve for their product...

Suppose there are two firms that produce an identical product. The demand curve for their product is represented by P=60-2Q, where Q is the total quantity produced by the two firms. The marginal cost of production is zero and there are no fixed costs.

A. Refer to Scenario: Oligopoly. Suppose both firms choose their individual quantities q1 (firm 1) and q2 (firm 2) simultaneously and independently (so Q = q1 + q2). What is the unique Nash equilibrium price?

B. Refer to Scenario: Oligopoly. Suppose firm 1 must choose its quantity, q1, first. Player 2 observes this quantity, and then chooses its own quantity, q2. What is the unique subgame perfect Nash equilibrium? Identify one additional Nash equilibrium.

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Expert Solution

Rahul Sunny answered 2 years ago
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