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In: Economics

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 question 5 , but the firms are now colluding. a. What is the collusion P, Q? b. Add the collusion curve to your graph above. c. What are profits?

7. What if question 5 demand curve was in a competitive equilibrium. a. What would the P, Q be? b. What would profits be?

8. Go back to your question 5 demand curve. Now assume firm 1 makes their decision about output first (Stackelberg Model). a. How much will they choose to produce? b. How much will firm 2 choose to produce? c. Calculate profit for firm 1 and firm 2. What does this tell you about being first mover?

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