The general form of the inverse demand curve is P = a - bQ. In one market, the specific inverse demand is P

= 100 - 1/3Q and the marginal cost for all firms is MC = 25. Use these equations to answer questions 2, 3, and

4. Show all computations.

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2. The firms compete in a Bertrand oligopoly.

a. What will be the market price?

Answer:

b. What is the quantity supplied to the market?

Answer:

3. The few firms that supply the market successfully form a cartel.

a. What is the MR for the cartel?

Answer:

b. What will the quantity supplied?

Answer:

c. What price will the cartel charge?

Answer:

4. The firms compete in a Cournot oligopoly. A more general, useful, and easier formula for the output of any firm i (firm 1 or firm 2, etc) than provided in B&P is:

Qi = ()/((+1)) where j is the number of firms competing in the Cournot oligopoly and c = MC for all firms.

Use this formula to answer the questions. The reaction functions in B&P are not needed.

For parts a through c, two (2) firms compete in a Cournot duopoly:

a. How much will each firm produce in equilibrium?

Answer:

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b. In this duopoly, what is the total market supply?

Answer:

c. What is the equilibrium price for the duopoly?

Answer:

For parts d and g, six (6) firms compete in a Cournot oligopoly.

d. How much will each firm produce in equilibrium?

Answer:

e. What is the total market supply?

Answer:

f. What is the equilibrium price?

Answer:

g. Compare the cartel, Cournot duopoly, and 6-firm Cournot oligopoly price. What do you conclude

about the relationship between competition and price? Of the oligopoly models examined above

(including the Bertrand model), which produces the lowest and highest price?