Consider a monopolist upstream supplier Ul sell- ing to two downstream producers DI and D2 engaged...

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Consider a monopolist upstream supplier Ul sell- ing to two downstream producers DI and D2 engaged in Cournot competi- tion. Downstream demand is described by: P= 100-Q and marginal cost is zero at both the upstream and downstream level. Show that the monopoly level of out- put is 50 and that monopoly profit is $2500. a. b. Imagine a contract by which U1 sells 25 units as a package to each of D1 and D2 at a price of $1,250. Each firm can either accept the package or reject it. Show that if decisions are made simultaneously, and each firm has full information about the other's actions, the Nash Equilibrium is for each to accept this offer. Consider a monopolist upstream supplier Ul sell- ing to two downstream producers DI and D2 engaged in Cournot competi- tion. Downstream demand is described by: P= 100-Q and marginal cost is zero at both the upstream and downstream level. Show that the monopoly level of out- put is 50 and that monopoly profit is $2500. a. b. Imagine a contract by which U1 sells 25 units as a package to each of D1 and D2 at a price of $1,250. Each firm can either accept the package or reject it. Show that if decisions are made simultaneously, and each firm has full information about the other's actions, the Nash Equilibrium is for each to accept this offer.

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answer a The monopoly level of output is 50 units and the monopoly profit is calculated as follows Profit Price Q MC Q 100 50 0 50 2500 b If decisions ... View the full answer