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In: Economics

Two firms face the following demand curve: P = 50 – 5Q, where Q = Q1...

Two firms face the following demand curve: P = 50 – 5Q, where Q = Q1 + Q2.

The firms cost functions are C1 (Q1) = 20 + 10Q1 for firm 1 and C2 (Q2)= 10 + 12Q2 for firm 2.

  1. Suppose both firms have entered the industry. What is the joint profit maximizing level of output?                                                                                                                    [5Marks]
  2. What is each firms equilibrium output and profit if they behave non-cooperatively? Use the Cournot model.                                                                                                 [5Marks]

c. How much should Firm 1 be willing to pay to purchase Firm 2 if collusion is illegal but a takeover is not?     [5Marks]

Solutions

Expert Solution

For solutions to the 3 parts, please refer to the images below:

Rahul Sunny answered 6 months ago
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