Question: Demand for light bulbs can be characterized by Q 100 P, where Q is in millions of boxes of lights sold and P

Demand for light bulbs can be characterized by Q ï€½ 100 ï€ P, where Q is in millions of boxes of lights sold and P is the price per box. There are two producers of lights, Everglow and Dimlit. They have identical cost functions:

a. Unable to recognize the potential for collusion, the two firms act as short-run perfect competitors. What are the equilibrium values of QE, QD, and P? What are each firm€™s profits?
b. Top management in both firms is replaced. Each new manager independently recognizes the oligopolistic nature of the light bulb industry and plays Cournot. What are the equilibrium values of QE, QD, and P? What are each firm€™s profits?
c. Suppose the Everglow manager guesses correctly that Dimlit is playing Cournot, so Everglow plays Stackelberg. What are the equilibrium values of QE, QD, and P? What are each firm€™s profits?
d. If the managers of the two companies collude, what are the equilibrium values of QE, QD, and P? What are each firm€™s profits?

C-100

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a Given that the total cost function is the marginal cost curve for each firm is MC i 10 Q i In the short run perfectly competitive firms determine the optimal level of output by taking price as given ... View full answer

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