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Game Theory

Dynamics and extensive form games The great successes of game theory in economics have arisen in large measure because game theory gives us a language for modeling and techniques for analyzing specific dynamic competitive interaction. Let have a look at an economic case. In the present, there is only a monopolist existing in the market. Demand of the market is: x=13-p With fixed cost=6.25 Revenue: Rx=xp=x(13-x) Profit: Px=Rx-cx=13-xx-x+6.25=12x-x2-6.25. Max profit :12*6-62=29.25. {draw:frame} _Figure 1.1 The monopolist‘s profit_ Assumption: that profit is the only quality for the entrant to consider whether he should enter the market or not. Suppose the monopolist is producing x* = 6 units and the potential entrant believes that if he enters, the monopolist will go on making 6 units and the entrant plans to produce y units. Q3= -32+6*3-6.25=2.75. In short, the monopolist and the entrant maximize their profit at x=6,y=3, respectively. {draw:frame} Figure 1.2 The......


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Approximate Word Count: 615
Approximate Pages: 3 (250 words per double-spaced page)

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