Cournot and Cartels Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function C(q) = 2 + q. (a) Determine the Cournot-Nash equilibrium quantities and price. How much profit does each firm earn? (b) Suppose the two firms agree to form a cartel, each producing half of the market output. What market output do they decide on, and what price do they charge? What is the profit of each firm? (c) Suppose firm A decides the suddenly break the agreement without firm B realizing it. How much output does firm A produce?
Cournot and Cartels Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function C(q) = 2 + q. (a) Determine the Cournot-Nash equilibrium quantities and price. How much profit does each firm earn? (b) Suppose the two firms agree to form a cartel, each producing half of the market output. What market output do they decide on, and what price do they charge? What is the profit of each firm? (c) Suppose firm A decides the suddenly break the agreement without firm B realizing it. How much output does firm A produce?
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.6P
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Transcribed Image Text:Economics
Cournot and Cartels
Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B,
and each has a cost function C(q) = 2 + q.
(a) Determine the Cournot-Nash equilibrium quantities and price. How much profit does each firm
earn?
(b) Suppose the two firms agree to form a cartel, each producing half of the market output. What
market output do they decide on, and what price do they charge? What is the profit of each
firm?
(c) Suppose firm A decides the suddenly break the agreement without firm B realizing it. How
much output does firm A produce?
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