Suppose that fax machines are made available in Neverland. Companies are decidin

Question

Suppose that fax machines are made available in Neverland. Companies are deciding whether to install a fax machine. It costs USD 500 to install the machine. Company's benefits from fax machine depends whether company is focused on national or international markets and also depends on the number of other companies relying on fax machine for communication. The benefit national companies receive from installing fax machine is USD 360+200x while the benefit international companies receive from installing fax machine is USD 450 + 500x. x [0, 1] represents the proportion of companies who use the fax machine for communication. Let p [0,1] and 1 -p represents the fractions of national aud international companies. When companies (national and international) decide to install the fax machine? Analyze the equilibrium adoption of fax machines in Neverland if p = 1? Is there any unstable equilibrium? stable equilibrium? Analyze the equilibrium adoption of fax machines in Neverland if p = 0.6? What happens when p = 0.2?

Explanation / Answer

answer 1) national companies

500=360+200x

500-360=200x

140=200x or x=0.7

International companies 450+500x=500

500x=500-450

x=50/500 or x=0.10

so these are the proportion of companies

answer 1.2) if p=1 then 1-p=0

thus the probability of international markets is zero

for national markets equilibrium

(360+200x) p= ( 360+200x)1

thus 360+200x is the eq equation

  

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