Consider an industry which has a market demand curve given by P=260−2Q. There are two firms...

Consider an industry which has a market demand curve given by P=260−2Q. There are two firms who are Cournot competitors. Firm 1 has marginal costc1=80 and firm2 has marginal costc2=20.

(a) [10 points] Find the Nash equilibrium quantities for these two firms.

(b) [20 points] Use the quantities you found in part (a) to find the profits for each firm and the market-clearing price.

(c) [20 points] Suppose these firms decide to form a cartel and collude. The firms will split the profits generated by the cartel equally. Will firm 1, firm 2 or both firms produce output? Why? How much output will the cartel produce? How much profit will each firm receive from the cartel?

(d) [20 points] Suppose firm 1 takes as given that firm 2 will produce the agreed upon amount from the previous question. If firm 1 decides to deviate from the agreement, how much output will firm 1 produce? How much profit will they generate? Assume that firm 1 is given half of firm 2’s profits as per the cartel agreement.

(e) [30 points] If this game is repeated indefinitely, what are the probability-adjusted discount factors that each firm must have in order to sustain the collusive agreement? Hint: these will be different for the two firms.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

In a duopoly market with two identical firms, the market demand curve is: P=50-2Q And the...

In a duopoly market with two identical firms, the market demand curve is: P=50-2Q And the marginal cost and average cost of each firm is constant: AC=MC=2 a. Solve for firm 1’s reaction curve and graph b. Solve for firm 2’s reaction curve and graph c. Solve for each firm’s Q and P in a cournot equilibrium and show on your graph i. What is the profit for each firm?

a market has a demand curve p= 700- 2q. the supply curve for the market which...

a market has a demand curve p= 700- 2q. the supply curve for the market which is also the monopolists marginal cost curve is given by p= 100 + q. calculate the change in quantity, price, consumer surplus, and producer surplus going from a perfectly competitive market to a monopoly

5. In a duopoly market with two identical firms, the market demand curve is: P=50-2Q And...

5. In a duopoly market with two identical firms, the market demand curve is: P=50-2Q And the marginal cost and average cost of each firm is constant: AC=MC=2 a. Solve for firm 1’s reaction curve and graph b. Solve for firm 2’s reaction curve and graph c. Solve for each firm’s Q and P in a cournot equilibrium and show on your graph i. What is the profit for each firm? 6. Now assume the same market demand curve as...

The market demand curve is given by p = 100 - Q Two firms, A and...

The market demand curve is given by p = 100 - Q Two firms, A and B, are competing in the Cournot fashion. Both firms have the constant marginal cost of 70. Suppose firm A receives a new innovation which reduces its marginal cost to c. Find the cutoff value of c which makes this innovation "drastic".

Suppose that the industry demand curve is given by P = 120 – 2Q. The monopolist/incumbent...

Suppose that the industry demand curve is given by P = 120 – 2Q. The monopolist/incumbent faces MCM=ACM=40. a) a) Solve for the profit-maximizing level of monopoly output, price, and profits. b) Suppose a potential entrant is considering entering, but the monopolist has a cost advantage. The potential entrant faces costs MCPE=ACPE=60. Assuming the monopolist/incumbent continues to produce the profit-maximizing quantity from part a), solve for the residual demand curve for the entrant. c) Assume the potential entrant follows the...

There are two firms in an industry. The industry demand is given by P = 84...

There are two firms in an industry. The industry demand is given by P = 84 - Q, where Q is the total output of the two firms. The follower has a marginal cost of $0, and the leader has a marginal cost of $21. What are the equilibrium prices and outputs of the two firms under a) Perfect competition; b) Bertrand duopoly; c) Cournot duopoly; d) Stackelberg duopoly?

An industry has the market demand of: P= 6300−2Q. The market is served by a large...

An industry has the market demand of: P= 6300−2Q. The market is served by a large collection of firms all with constant marginal costs: MC= 4200 a. what is initial price b. if one firm was able to innovate and drive their MC=3200, what is price and quantity this firm would choose to set max profits as a monopolist if it had the market to itself? c. suppose a one firm is able to drive their MC=3200. what is the...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the...

Consider an industry facing the market demand curve, p = 25 - 0.25 Q. Given the cost situation where average cost is equal to marginal cost which is equal to $10: (Points 35) (a) compute competitive price, quantity, profit and consumer surplus; (b) compute monopoly price, quantity, profit, consumer surplus and welfare loss ; (c) show that if a monopolist can further sell its product in the secondary market, then the welfare loss can be diminished.; (d) compute the price elasticity...

Consider a market with demand represented by P=500-2Q. Assume there are two firms, each with MC=25....

Consider a market with demand represented by P=500-2Q. Assume there are two firms, each with MC=25. If the firms compete on quantity in Cournot Competition, what will be the equilibrium quantity (for each firm and overall) and price? If firm 1 is a leader in Stackelberg competition, what will be the equilibrium quantity (for each firm and overall) and price?

a) A duopolist faces a market demand curve given by P = 56-2Q . Each firm...

a) A duopolist faces a market demand curve given by P = 56-2Q . Each firm can produce output at a constant MC of $20 per unit. find the equilibrium quantity for the market. b) A duopolist faces a market demand curve given by P = 56-2Q . Each firm can produce output at a constant MC of $20 per unit. Firm one is the leading firm and makes the first decision. find the equilibrium quantity for the market.

Subjects