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Need help with f, g and h Question 1 The following (hypothetical) table is a demand schedule for petrol in a town that only has

Need help with f, g and h

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Question 1 The following (hypothetical) table is a demand schedule for petrol in a town that only has two petrol stations (Firm 1: BP and Firm 2: Caltex). Each firms costs are MC=$1 and FC= $0. Find the profit for each P and Q combination (i.e. complete the table) P (price) Q (quantity) litres Revenue Cost Profit of petrol (TR=P*Q) (TC=FC+VC)* $0 10,000 $0 $10,000 1 9,200 $9,200 9,200 2 8,400 16,800 8,400 3 7,600 22,800 7,600 4 6,800 27,200 6,800 5 6,000 30,000 6,000 6 5,200 31,200 5,200 7 4,400 30,800 4,400 3,600 28,800 3,600 9 2,800 25,200 2,800 *Note - if MC=$1 then AVC = $1 and is constant. We know, that TC=Q*AVC => so TC=Qx$1 (i.e. is equal to Q). (a) What is the competitive outcome (i.e. (P, Q and profit)? (b) If the two firms were to operate together as a monopoly (ie a single firm) what would the monopoly outcome (P, Q and profit) be? (c) If firm 1 (BP) decided to cheat on the agreement and decided to sell Q=3,000 what happens to the market price? Calculate BP's profit. d) Is it in BP's interest to cheat on this agreement? (e) If both petrol stations were to cheat and both planned to sell Q=3000 each, calculate their profits (f) If each firm sells Q- 3,000 and P = $5 and each firms profit is $12,000 i. Should BP increase Q to 3,800? ii. Should Caltex increase Q to 3,800? (g) What is the Nash equilibrium? (h) What does this example demonstrate about a non-cooperative oligopoly

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