Consider two identical firms (no. 1 and no. 2) that face a linear market demand curve....

Consider two identical firms (no. 1 and no. 2) that face a linear market demand curve. Each firm has a marginal cost of zero and the two firms together face demand: P = 50 - 0.5Q.

a. Find the Cournot equilibrium Q and P for each firm.

b. Find the equilibrium Q and P for each firm assuming that the firms collude and share the profit equally.

c. Contrast the efficiencies of the markets in (a) and (b) above.

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Expert Solution

Rahul Sunny answered 1 year ago

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