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# Globalization discussion questions

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1. (Requires calculus) In the model of a dominant firm, assume that the fringe supply curve is given by Q = -1 + 0.2P, where P is market price and Q is output. Demand is given by Q = 11 - P.
What will price and output be if there is no dominant firm? Now assume that there is a dominant firm, whose marginal cost is constant at \$6. Derive the residual demand curve that it faces and calculate its profit-maximizing output and price.

10. A selfless person approaches Jones and Smith with a \$100 bill and offers to sell it to the highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones bids \$2 and Smith bids \$1 they pay a total of \$3, but Jones gets the money, leaving him with a net gain of \$98 and Smith with -\$1. If both bid the same amount, the \$100 is split evenly between them. Assume that each of them has only two \$1 bills on hand, leaving three possible bids: \$0, \$1, or \$2. Write out the payoff matrix for this game, and then find its Nash equilibrium.

##### Solution Summary

The model of a dominant firm for a fringe supple curve is examined. The residual demand curve that it faces is derived.

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• MBA, Indian Institute of Finance
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