Two firms, A and B, compete as duopolists in an industry. The firms produce a homogeneous...

Two firms, A and B, compete as duopolists in an industry. The firms produce a homogeneous good. Each firm has a cost function given by:

C(q) = 30q + 1.5q2

The (inverse) market demand for the product can be written as: P =300−3Q, where Q = q1 + q2, total output.

(a) If each firm acts to maximize its profits, taking its rival’s output as given (i.e., the firms behave as Cournot oligopolists), what will be the equilibrium quantities selected by each firm? What is total output, and what is the market price? What are the profits for each firm?

It occurs to the managers of Firm A and Firm B that they could do a lot better by colluding. If the two firms collude, what would be the profit-maximizing choice of output? The industry price? The output and the profit for each firm in this case?

Suppose Firm A (leader) can set its output level before Firm B (follower) does. Use backward induction method to determine how much will Firm A choose to produce in this case? How much will Firm B produce? What is the market price, and what is the profit for each firm? Is firm A better off by choosing its output first? Explain why or why not.

what is the utility?

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Rahul Sunny answered 1 month ago

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