1. What is the Nash Equilibrium (in the sense of mutual best response) in the following scenario:
* 2 firms
* Each produces before goods are brought to market
* One firm has Marginal Cost = 100; but the other firm has Marginal cost = 200; either firm can produce as large an amount as they might wish
* Price is set as the price that clears the market (i.e. price is that which allows all units that have been brought to market to be sold)
* Demand is according to: Price = 2000 – 3Qd
2. Now suppose that the situation in problem #1 changes in the following way: now the firms quote prices FIRST… then goods are produced.
What price will result? How many units will be produced? Give answers (price and quantity) for each firm.
3. A. In a posted offer market (e.g. gasoline station, or supermarket) why might sellers care about the order in which buyers arrive to inspect (and maybe accept) sellers’ offers? Explain.
B. Would a call market (a market where the price is determined as the intersection of supply and demand, based on information submitted by buyers and sellers… arguably the market which is assumed in Cournot) behave more like a posted offer with buyers arriving in: (a) random order, or (b) descending order of the valuations placed by buyers on the good? Why?
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