3. The following diagram illustrates the reaction functions and isoprofit curves for a homogeneous-product duopoly in which each firm produces at constant marginal cost.

a. If your rival produces 50 units of output, what is your optimal level of output?

b. In equilibrium, how much will each firm produce in a Cournot oligopoly?

c. In equilibrium, what is the output of the leader and follower in a Stackelberg oligopoly?

d. How much output would be produced if the market were monopolized?

e. Suppose you and your rival agree to a collusive arrangement in which each firm produces half of the monopoly output.

(1) What is your output under the collusive arrangement?

(2) What is your optimal output if you believe your rival will live up to the agreement?

Transcribed Image Text:

325 300 275 250 225 200 175 150 125 100 75 50 25 0 0 25 50 50 75 100 125 150 175 200 150 175 200 225 250 275 300