Consider a market with two firms, facing the demand function: p = 120 – Q. Firms...

Consider a market with two firms, facing the demand function: p = 120 – Q. Firms are producing their output at constant MC=AC=20.

If the firms are playing this game repetitively for infinite number of times, find the discount factor that will enable cooperation given the firms are playing grim trigger strategy.

Solutions

Expert Solution

If you liked the answer then please upvote. Would be motivating for me. Thanks

Rahul Sunny answered 2 months ago

Next > < Previous

Related Solutions

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber...

The market demand is Q=120-P, there are two firms on the market that engage in Stackelber competition. Both firms have MC=0 and FC=0. How much more profit does Stackelber leader made compared to Cournot?

Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q...

Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q1)=30 + 10Q1 and Firm 2 has the cost function TC(Q2)=15 + 20Q2. a) Write down the Profit function of Firm 1: Profit function of Firm 2: b) Using the profit functions in part (a), obtain the reaction function of Firm 1 to Firm 2....

1 Consider two Cournot competitive firms – with the following market demand function P=100-Q. The firms...

1 Consider two Cournot competitive firms – with the following market demand function P=100-Q. The firms face constant marginal costs, MC1 = 5 whereas MC2 = 25. However, if they merge then the marginal production costs would fall to 5. Calculate the costs and benefits due to the merger for either firm. Is this merger Pareto improving for the economy? Explain. A Bertrand competition does not necessarily gravitate towards competitive prices in the equilibrium, with imperfect substitutes. In...

There are N symmetric firms in the industry, facing market demand Q (p) = 250-p Firms...

There are N symmetric firms in the industry, facing market demand Q (p) = 250-p Firms have a constant marginal cost of production of c = 10, and they compete in prices. a) What are the Bertrand equilibrium price, output levels, and profits? b) Suppose that the firms want to sustain the monopoly price using grim trigger strategies. Let each firm produce a share of 1/N of the total demand under collusion. Calculate the critical discount factor as a function...

Consider an oligopolist market with demand: Q = 18 – P. There are two firms A...

Consider an oligopolist market with demand: Q = 18 – P. There are two firms A and B. The cost function of each firm is given by C(q) = 8 + 6q. The firms compete by simultaneously choosing quantities. a. Write down firm A’s profit function and derive firm A’s reaction function. b. Plot the reaction functions of both firms in a diagram. c. What is the optimal quantity produced by firm A and firm B? d. Now suppose firm...

Consider a market with 4 firms, each facing the same (inverse) demand function given by p...

Consider a market with 4 firms, each facing the same (inverse) demand function given by p = ( 6 − q/50 if q > 200 4.5 − q/200 if 0 ≤ q ≤ 200 If there is a drop in one of the firm’s marginal cost from c = $3 to c = $2, do you think this firm would greatly increase its sales? Explain!

1. Consider two firms facing the demand curve P = 50 ? 5Q, where Q =...

1. Consider two firms facing the demand curve P = 50 ? 5Q, where Q = Q1 + Q2. The firms cost functions are C1(Q1) = 20 + 10Q1 and C2(Q2) = 20 + 10Q2. a. Suppose both firms have entered the industry. What is the joint profit-maximizing level of output? How much will each firm produce? How would your answer change if the firms have not yet entered the industry? b. How much should Firm 1 be willing to...

Consider a market where the inverse demand function is P = 100 - Q. All firms...

Consider a market where the inverse demand function is P = 100 - Q. All firms in the market have a constant marginal cost of $10, and no fixed costs. Compare the deadweight loss in a monopoly, a Cournot duopoly with identical firms, and a Bertrand duopoly with homogeneous products.

Firms A and B are Bertrand duopolists facing market demand, P = 300-Q, where Q =...

Firms A and B are Bertrand duopolists facing market demand, P = 300-Q, where Q = QA+QB, and marginal cost, MC = 68. a)What level of output will each firm will produce? b)What price will each charge? c)Why is this outcome a Nash equilibrium?

Consider a market in which firms are price-takers. The inverse demand function is p(Q) = 1...

Consider a market in which firms are price-takers. The inverse demand function is p(Q) = 1 – Q, where p denotes the price of good Q. The production costs are C(Q) = mQ, with 0 < m < 1. The environmental damage caused by output Q is D(Q) = Q 2 . a) Compute the equilibrium price and output. Also, calculate the socially optimal solution. Explain the differences, using a suitable diagram. b) What is the aim of an emission...

Subjects