1. Consider two companies A and B sharing a market by producing identical goods (or highly...

1. Consider two companies A and B sharing a market by producing identical goods (or highly substitutable goods). Company A’s marginal cost is MC=20 and company B’s marginal cost is MC=10. Market demand is known to beP=100-0.001Q.

(a) Find profit maximizing level of QA and QB under oligopoly setting.

(b) Determine the market price.

(c) Determine the revenue of company A and B.

(d) Determine the profit of company A and B.

(e) Find collusive level of profit maximizing output for A and B (Under collusion A and B share the same MC=10 and share the market equally).

(f) Using a simple game theory method, show that the collusive outcome is not sustainable. Be sure to construct a 2x2 matrix with correct payoffs.

Expert Solution

Rahul Sunny answered 2 years ago

1. Consider two companies A and B sharing a market by producing identical goods (or highly...

1. Consider two companies A and B sharing a market by producing identical goods (or highly substitutable goods). Company A’s marginal cost is MC=20 and company B’s marginal cost is MC=10. Market demand is known to be P=100-0.001Q. Find profit maximizing level of QA and QB under oligopoly setting. Determine the market price. Determine the revenue of company A and B. Determine the profit of company A and B. Find collusive level of profit maximizing output for A and B...

Consider two companies A and B sharing a market by producing identical goods (or highly substitutable...

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1. Consider two companies A and B sharing a market by producing identical goods (or highly...

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