Question
Let inverse demand, marginal cost and average total cost be given by: P = 20 Q MC = ATC = 4 a. Calculate the monopoly
Let inverse demand, marginal cost and average total cost be given by: P = 20 Q MC = ATC = 4 a. Calculate the monopoly equilibrium. b. Suppose that there are two producers who wish to form a cartel. If they split production evenly between themselves, how much will each produce? What will their individual profits be? c. Suppose now that one producer deviates from the cartel arrange- ment. How much will this producer produce? What are each producers individual profits in this case? d. Suppose that both producers deviate from the agreement. Find each producers best-response function. What are the Nash equi- librium quantities and associated profits? e. Summarize your results from b-d in a payoff matrix. f. What outcome would you expect to occur in this setting? Is co- operation likely in this one-shot, static game?
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