Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A. Two firms, A and B, both have costs C(O = 250;. Market demand is Q: 100 - 2P, 0: 0A + 03. (1) a.

image text in transcribed
image text in transcribed
A. Two firms, A and B, both have costs C(O = 250;. Market demand is Q: 100 - 2P, 0: 0A + 03. (1) a. If this market were perfectlyr competitive, what would market price, quantity, and prots be? b. If this market were operating as a cartel, what would market price, quantity. and profits be? (2) Assume the market is operating as a Cournot duopoly. a. What is firm A's profit function? b. What is rm A's reaction function? c. What is firm A's output? What are market output and price? d. What is firm A's profit? (3) Assume the market is a Stackelberg duopoly, and firm A is the leader. a. What is firm A's profit function? b. What is firm A's output? c. What is firm B's output? What are market output and price? d. What is firm A's profit? What is firm B's profit? (4) Assume that A and B have agreed to create a cartel in which each member keeps the profit produced by hisfher own output. a. If A decides to cheat, and A assumes that B will produce the agreedupon level (namely, half the total amount from (1) b.), how much will A produce? b. How much profit does each firm receive if A cheats and B does not? What is each firm's profit if mt_h firms cheat? c. This problem can be analyzed using a payoff matrix. Fill in the payoffsfprofits for each firm in a matrix like this one: Cooperate Cheat Cooperate Cheat d. From this matrix, what can you conclude about the possibility of maintaining the cartel

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Microeconomics

Authors: Robert Frank

7th Edition

1260111083, 9781260111088

More Books

Students also viewed these Economics questions

Question

If f(x) = (x - a) (x - b) (x - c), show that F(x) 1

Answered: 1 week ago