ing by Doing E
PROBLEM (5) (In a market with demand Q = 780 - p, there are 3 identical firms, A, B and C; each with a total cost function TC(Q) = 3Q2. Calculating the market price under each of the 5 scenarios below, rank/order the Consumer Surplus in each scenario (don’t calculate each CS; just rank them);
(i) (See textbook’s Learning by Doing Exercise 13.2 on page 544 in 5th ed for Cournot competition with more than 2 firms) They compete in quantities with each other (Cournot-Nash equilibrium). (HINT: As you should find out, firms have the same MCs, hence the Best Response equations are symmetrical; hence there is a symmetric solution withqA=qB=qC astheCournot-Nashequilibrium)
(ii) They collude as though they are all plants of the same single multi-plant
(iii) B and C act as two plants of a single multi-plant monopoly “B+C”, which competes in quantities (Cournot competition) against A.
(iv) B and C jointly form the fringe supply and A is the dominant firm in the dominant firm model.
(v) They act as
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