1.Suppose that demand is given by P=130-Q and marginal cost equals 10. Firms are Bertrand competitors with unconstrained capacity and play a supergame.

a)For what values of the discount factor can grim punishment strategies support an equal division of the monopoly output?

b)Which type of competition, Bertrand or Cournot is more likely to sustain the collusive agreement? Why?

2.Suppose that demand is given by P= A-Q and marginal costs are constant and equals to c where A> c. Assume that there are two firms that are Cournot competitors and they play a supergame. Find the critical value of the discount factor required to sustain a collusive agreement specifying an equal sharing of monopoly profits through grim punishment strategies.