Question

In: Economics

Suppose that there are two taxi companies, Crab (CR) and Wber (WB), operating in Hong Kong....

  1. Suppose that there are two taxi companies, Crab (CR) and Wber (WB), operating in Hong Kong. The two firms each face daily demand for taxi rides as follows:

    QCR = 200−PCR +PWB QWB = 235−2PWB +PCR

    Both companies have the same average cost and marginal cost of $5 per ride.

  2. a. Find the Bertrand equilibrium price and output of each firm.

  3. b. Suppose Crab and Wber were to collude to maximize joint profits assuming equal bargaining power. Find the equilibrium price and output of each firm in this case. How much profit does each taxi company make?

  4. c. Is the collusion described in part b stable? Explain and justify your answer based on microeconomic theory.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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