MICROECONOMICS (LL) W/CONNECT ACCESS
21st Edition
ISBN: 9781264197163
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 14, Problem 1P
To determine
The punishment strategy for the cheating firm.
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Consider a “punishment” variation of the two-firm oligopoly situation shown in Figure 14.1. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars is taken from the low-price firm and given to the high-price firm. What is the smallest amount that the fine X can be such that both firms will want to always set the high price?
Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Firm A) is large and the other firm (Firm B) is small, as the prisoner’s dilemma box in Table 10.4 shows.
Firm B colludes with Firm A
Firm B cheats by selling more output
Firm A colludes with Firm B
A gets $1,000, B gets $100
A gets $800, B gets $200
Firm A cheats by selling more output
A gets $1,050, B gets $50
A gets $500, B gets $20
Table10.4
Assuming that both firms know the payoffs, what is the likely outcome in this case?
Consider Firm A and Firm B, each with cost functions C(qA) = 5qA, and C(qB) = 5qB, The inverse market demand is given by p = 30 − Q, where Q = qA + qB represents the total quantity demanded in the market.
a) Suppose the firms compete in a Cournot oligopoly model. What are the quantities supplied by each firm and their profits?
b) Now let Firm A be the first-mover. If the firms compete in a Stackelberg oligopoly model, what are the quantities supplied by each firm and their profits?
c) How can you interpret the difference in profits between parts (a) and (b)? In other words, if you were Firm A, which scenario would you prefer, and what might this say in general?
Chapter 14 Solutions
MICROECONOMICS (LL) W/CONNECT ACCESS
Ch. 14.2 - Prob. 1QQCh. 14.2 - The D2e segment of the demand curve D2eD1 in graph...Ch. 14.2 - Prob. 3QQCh. 14.2 - Prob. 4QQCh. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQCh. 14 - Prob. 6DQ
Ch. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 1RQCh. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - Prob. 9RQCh. 14 - Prob. 10RQCh. 14 - Prob. 1PCh. 14 - Prob. 2PCh. 14 - Prob. 3P
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