1. Two firms serve a market simultaneously where demand is P = 40 - 5(Q+Q2). Each...

 

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1. Two firms serve a market simultaneously where demand is P = 40 - 5(Q₁+Q2). Each firm's marginal cost is 20. a) Suppose each firm maximizes its own profit by competing on quantities. Find an expression for firm 1's optimal output as it depends on firm 2's. In equilibrium, what level of output will each firm supply? b) Suppose, instead, that the firms collude in setting their outputs. What outputs should they set and why? 1. Two firms serve a market simultaneously where demand is P = 40 - 5(Q₁+Q2). Each firm's marginal cost is 20. a) Suppose each firm maximizes its own profit by competing on quantities. Find an expression for firm 1's optimal output as it depends on firm 2's. In equilibrium, what level of output will each firm supply? b) Suppose, instead, that the firms collude in setting their outputs. What outputs should they set and why?

Answer rating: 100% (QA)

ANSWER a To find the optimal output of firm 1 we need to write down its profit function and then dif... View the full answer