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Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and
Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = q, where q is the quantity produced by the firm. Clearly, Q = qA + 9B. (a) What quantities do the two firms produce if they behave as Cournot duopolists? [2 points] (b) What quantities do the two firms produce if they form a cartel? [2 points] (c) If firms cannot not verify each other's quantity, what will the firms end up doing? Will they behave as Cournot duopolist or form a cartel? [1 point]
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