Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good. Both firms have the same constant marginal cost: MC = m = 40. The demand in this market is given by: Q = 100 – .25p =p = 400 – 4Q denote the price charged by firm 1, the quantity firm 1 produces and sells, and firm 1's profits, respectively. Analogously, let p2, 92, and t, denote the price, the quantity, and profits for firm 2. When appropriate, assume the firms split total quantity and profits evenly. Let p1, 91, and a. Assume that consumers in this market demand Q = 50 and the two firms compete by choosing prices simultaneously (Bertrand oligopoly with identical products). What will be the price, quantity, and profit for each firm in equilibrium? How does this equilibrium compare to a perfectly competitive equilibrium? b. Assume now that the two firms compete by choosing quantities simultaneously (Cournot oligopoly with identical products). What will be the price, quantity, and profit for each firm in equilibrium? c. Assume now that the two firms now collude to act as monopolist. That is, they form a cartel. What will be the price, quantity, and profit for each firm in equilibrium?

Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good. Both firms have the same constant marginal cost: MC = m = 40. The demand in this market is given by: Q = 100 – .25p =p = 400 – 4Q denote the price charged by firm 1, the quantity firm 1 produces and sells, and firm 1's profits, respectively. Analogously, let p2, 92, and t, denote the price, the quantity, and profits for firm 2. When appropriate, assume the firms split total quantity and profits evenly. Let p1, 91, and a. Assume that consumers in this market demand Q = 50 and the two firms compete by choosing prices simultaneously (Bertrand oligopoly with identical products). What will be the price, quantity, and profit for each firm in equilibrium? How does this equilibrium compare to a perfectly competitive equilibrium? b. Assume now that the two firms compete by choosing quantities simultaneously (Cournot oligopoly with identical products). What will be the price, quantity, and profit for each firm in equilibrium? c. Assume now that the two firms now collude to act as monopolist. That is, they form a cartel. What will be the price, quantity, and profit for each firm in equilibrium?

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

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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