I need to solve the following equation, but I'm not sure how to proceed.
Profit cartel/ (1-δ) ≥ profit deviation + δ(profit Nash eq. / (1-δ))
I've got the following info:
Profit cartel = ((a-c)^2)/8b
Profit Nash eq. = ((a-c)^2)/9b
Profit deviation = (9(a-c)^2)/64b
How do I solve for δ?
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Verified answer
Here's your equation: Profit cartel/ (1-δ) ≥ profit deviation + δ(profit Nash eq. / (1-δ))
These are your designations:
Profit cartel = ((a-c)^2)/8b
Profit Nash eq. = ((a-c)^2)/9b
Profit deviation = (9(a-c)^2)/64b
Make these changes:
Profit cartel = A
Profit Nash eq. = B
Profit deviation = C
Your equation ===> A / ( 1 - δ ) ≥ C + δ( B / (1 - δ) )
Now you have an equation you can deal with, and it's just simple, and straightforward algebra.
=> A / ( 1 - δ ) ≥ C + δ( B / (1 - δ) )
=> A / ( 1 - δ ) ≥ C + δB / (1 - δ) )
=> A ≥ C(1 - δ) + δB
=> A ≥ C - Cδ + δB
=> δ( B - C ) ≥ C - A
=> δ ≥ ( C - A ) / ( B - C )
Much easier to work with it in this way, now just put back in for A, B & C and you're done.