question archive 1)Why are costs imposed on others without their consent problematic for a market economy? 2)Consider a Stackelberg game of quantity competition between two firms
1)Why are costs imposed on others without their consent problematic for a market economy? 2)Consider a Stackelberg game of quantity competition between two firms
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1)Why are costs imposed on others without their consent problematic for a market economy?
2)Consider a Stackelberg game of quantity competition between two firms. Firm 1 is the leader and firm 2 is the follower. Market demand is described by the inverse demand function P= 1,000 - 4Q. Each firm has a constant cost of production equal to 20.
a) Solve for Nash equilibrium outcome.
b) Suppose firm 2's unit cost of production is c less than 20. What value would c have so that in the Nash equilibrium the two firms, leader and follower, had the same market share?
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1)The cost imposed to third-party is referred to as external cost or negative externality. The external costs are problematic for a market economy because they make the markets to apportion resources inefficiently and thus impacting the economic well-being adversely. For example, aluminum production plants generate smoke which results in health risk for the bystanders. As a result, the cost to the society of generating aluminum exceeds the cost to aluminum manufacturers.
2)please see the attached file for the complete solution.
