Consider a market with two firms 1 and 2. The cost function of firm 1 and...

 

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Consider a market with two firms 1 and 2. The cost function of firm 1 and 2 are C(q) = 2q1 and C(q2) = 492, where q₁ and q2 are the quantity choices of firm 1 and firm 2, respectively. The market demand is P(Q) = 100-4Q, where Q = 91 +92. P is price. 1. Consider these two firms compete in a Cournot model. Solve the equilibrium output and profit for each firm. 2. Depict the best response curves of the two firms using your answer for question 1. Interpret the meaning of the interaction of these curves. 3. If these two firms decide to collude with each other, find the expected outputs, price, and profits under collusion. 4. Verify whether the collusive results are sustainable using strategic-form analysis. You have to find payoffs for each possible scenario. Explain the equilibrium you found. Consider a market with two firms 1 and 2. The cost function of firm 1 and 2 are C(q) = 2q1 and C(q2) = 492, where q₁ and q2 are the quantity choices of firm 1 and firm 2, respectively. The market demand is P(Q) = 100-4Q, where Q = 91 +92. P is price. 1. Consider these two firms compete in a Cournot model. Solve the equilibrium output and profit for each firm. 2. Depict the best response curves of the two firms using your answer for question 1. Interpret the meaning of the interaction of these curves. 3. If these two firms decide to collude with each other, find the expected outputs, price, and profits under collusion. 4. Verify whether the collusive results are sustainable using strategic-form analysis. You have to find payoffs for each possible scenario. Explain the equilibrium you found.

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1 In a Cournot model each firm chooses its quantity to maximize its profit taking the quantity of the other firm as given To find the equilibrium outp... View the full answer