(1) Suppose that two identical firms produce widgets and that they are the only firm in the market. Their costs are given by C₁ = 60Q₁ and C₂ = 60Q₂, where Q₁ is the output of Firm 1 and Q₂ is the output of Firm 2. Price is determined by the followin demand curve: P = 300 - Q Where Q=Q₁ + ₂ a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium. b. Suppose the two firms form a cartel to maximize joint profits. How many
(1) Suppose that two identical firms produce widgets and that they are the only firm in the market. Their costs are given by C₁ = 60Q₁ and C₂ = 60Q₂, where Q₁ is the output of Firm 1 and Q₂ is the output of Firm 2. Price is determined by the followin demand curve: P = 300 - Q Where Q=Q₁ + ₂ a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium. b. Suppose the two firms form a cartel to maximize joint profits. How many
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter12: Price And Output Determination: Oligopoly
Section: Chapter Questions
Problem 1E
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Transcribed Image Text:(1) Suppose that two identical firms produce widgets and that they are the only firms
in the market. Their costs are given by C₁ = 60Q₁ and C₂ = 600₂, where Q₁ is the
output of Firm 1 and Q₂ is the output of Firm 2. Price is determined by the following
demand curve:
P = 300 - Q
Where Q=Q₁+Q₂
a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this
equilibrium.
b. Suppose the two firms form a cartel to maximize joint profits. How many
widgets will be produced? Calculate each firm's profit.
c.
Suppose Firm 1 were the only firm in the industry. How would market output
and Firm 1's profit differ from that found in part (b) above?
d. Returning to the duopoly of part (b), suppose Firm 1 abides by the agreement
but Firm 2 cheats by increasing production. How many widgets will Firm 2
produce? What will be each firm's profit?
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