# Question

Suppose that Iran and Iraq are Cournot duopolists in the crude oil market and face the following market demand function:

P = 100 – (q1 + q2),

where q i represents the output levels of the two countries with Iran being 1 and Iraq being 2, and P is the per- barrel price. The marginal revenue schedules facing the two countries are:

MR1 = 100 – 2q1 – q2 and

MR2 = 100 – 2q2 – q1

Each country has a marginal cost curve of the form:

MCi = qi,

where i = 1, 2.

a. Determine each country’s reaction function.

b. Does a Cournot equilibrium exist? If so, find the outputs and prices of crude oil in the two countries.

c. Suppose that the two countries collude and become a cartel. What will be the resulting price and outputs for crude oil for the two countries?

d. Can it be said that because collusive profits are strictly greater, it is true that these countries should necessarily collude? Are there any potential pitfalls in such a collusive arrangement?

P = 100 – (q1 + q2),

where q i represents the output levels of the two countries with Iran being 1 and Iraq being 2, and P is the per- barrel price. The marginal revenue schedules facing the two countries are:

MR1 = 100 – 2q1 – q2 and

MR2 = 100 – 2q2 – q1

Each country has a marginal cost curve of the form:

MCi = qi,

where i = 1, 2.

a. Determine each country’s reaction function.

b. Does a Cournot equilibrium exist? If so, find the outputs and prices of crude oil in the two countries.

c. Suppose that the two countries collude and become a cartel. What will be the resulting price and outputs for crude oil for the two countries?

d. Can it be said that because collusive profits are strictly greater, it is true that these countries should necessarily collude? Are there any potential pitfalls in such a collusive arrangement?

## Answer to relevant Questions

Suppose that Iraq is the Stackelberg leader in the preceding problem. What will be each country’s reaction function? How much will each country produce, and what will its profits be?“There is no general theory of oligopoly.” Explain this statement.Historically, officials from 23 elite northeastern colleges with selective admissions policies and high tuition met each spring to compare financial aid packages for more than 10,000 common applicants. The meetings, known as ...A considerable number of initial public offerings (IPOs) of stock in a company evidence a substantial run-up in price during early trading. Explain why asymmetric information between the investment banks organizing the ...Explain why a certain triangular area is a measure of the deadweight loss of monopoly. What information do you require in order to calculate the size of this triangle?Post your question

0