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 D (Delta) of N. Does collusion become easier or harder to sustain as N increases?
c) Suppose that the actual discount factor is = 0.7. How many firms can enter this industry without jeopardizing the cartel?

Expert Solution

Rahul Sunny answered 7 months ago

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