2. Consider a duopoly market. Two firms are selling identical products and all costs are assumed to be zero for simplicity. Market demand schedule is given in the following table. Note that firms always choose an integer value for the quantity of production. Quantity Price Total Profit 3 $12 4 11 7 4 2. 1. 10 a. Fill in the column of total profit. b. Assume both firms agree to form a cartel, so both agree to produce the same amount of output. Find the market outcome (market output, price, and each firm's profit) under the cartel. c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increase or decrease output from the cartel situation.
2. Consider a duopoly market. Two firms are selling identical products and all costs are assumed to be zero for simplicity. Market demand schedule is given in the following table. Note that firms always choose an integer value for the quantity of production. Quantity Price Total Profit 3 $12 4 11 7 4 2. 1. 10 a. Fill in the column of total profit. b. Assume both firms agree to form a cartel, so both agree to produce the same amount of output. Find the market outcome (market output, price, and each firm's profit) under the cartel. c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increase or decrease output from the cartel situation.
Chapter15: Oligopoly And Strategic Behavior
Section: Chapter Questions
Problem 7P
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*You only need to answer question C*
![Oligopoly
2. Consider a duopoly market. Two firms are selling identical products and all costs are
assumed to be zero for simplicity. Market demand schedule is given in the following
table. Note that firms always choose an integer value for the quantity of production.
Quantity
Price
Total Profit
3
$12
4
11
8
6
7
4
8.
2
9.
10
a. Fill in the column of total profit.
b. Assume both firms agree to form a cartel, so both agree to produce the same amount of
output. Find the market outcome (market output, price, and each firm's profit) under
the cartel.
c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increase
or decrease output from the cartel situation.
d. Eventually, it results in a Nash equilibrium when the two firms are in a competition. Find
the non-cooperative market outcome (market output, price, and each firm's profit).
e. As two new firms selling identical products enter the market, there are in total four
firms in the market. All of them make their own production decision simultaneously.
What will be the new equilibrium market outcome? (Find market output, price, and
each firm's profit, respectively.) [Hint: Assume that these four firms form a cartel, and
check if there is an incentive for any firm to change its output.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcfcc628e-0ed9-4421-801f-d415a517e385%2Fa0caa41d-867e-4487-805b-decb4f36017b%2Fyejjvms_processed.png&w=3840&q=75)
Transcribed Image Text:Oligopoly
2. Consider a duopoly market. Two firms are selling identical products and all costs are
assumed to be zero for simplicity. Market demand schedule is given in the following
table. Note that firms always choose an integer value for the quantity of production.
Quantity
Price
Total Profit
3
$12
4
11
8
6
7
4
8.
2
9.
10
a. Fill in the column of total profit.
b. Assume both firms agree to form a cartel, so both agree to produce the same amount of
output. Find the market outcome (market output, price, and each firm's profit) under
the cartel.
c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increase
or decrease output from the cartel situation.
d. Eventually, it results in a Nash equilibrium when the two firms are in a competition. Find
the non-cooperative market outcome (market output, price, and each firm's profit).
e. As two new firms selling identical products enter the market, there are in total four
firms in the market. All of them make their own production decision simultaneously.
What will be the new equilibrium market outcome? (Find market output, price, and
each firm's profit, respectively.) [Hint: Assume that these four firms form a cartel, and
check if there is an incentive for any firm to change its output.]
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