This weeks Topic: Oligopoly Competition

1. Consider two companies A and B sharing a market by producing identical goods (or highly substitutable goods). Company A's marginal cost is MC=20 and company B's marginal cost is MC=10. Market demand is known to be P=100-0.001Q.

(a)Find profit maximizing level of Q_A and Q_B under oligopoly setting.

(b) Determine the market price.

(c)Determine the revenue of company A and B.

(d) Determine the profit of company A and B.

(e)Find collusive level of profit maximizing output for A and B (Under collusion A and B share the same MC=10 and share the market equally).

(f)Using a simple game theory method, show that the collusive outcome is not sustainable. Be sure to construct a 2x2 matrix with correct payoffs.