Suppose there are only two firms serving your market with the high-speed Internet access. Market demand...

Suppose there are only two firms serving your market with the high-speed Internet access. Market demand is estimated to be P = 40 – 5(Q₁ + Q₂). Each firm’s marginal cost is $20.
1. Suppose each firm maximizes its own profit, treating the other’s quantity as constant. Find an expression for firm 1’s optimal output as it depends on firm 2’s. In equilibrium, what common levels of output will each firm supply?

b. Suppose the two firms decide to collude in setting their outputs. What outputs should they set and why?

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Expert Solution

Rahul Sunny answered 1 week ago

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