consider two (2) profit- maximizing firms that behave as quantity setters and supply a homogenous product. market demand is P=20-Q. Total cost of each firm are C(q1) =1/2q1^2

a) calculate the equilibrium quantities and profit of each firm

b) now suppose that two firms play a repeated game and decides to form a cartel. they make a cartel agreement that their joint profits , and involve each of them setting the same quantity in each period .calculate the cartel quantity for each firm and the resulting per- period cartel profit for each firm

c) suppose the two firms play a trigger strategy but firm 1 decides to cheat on the cartel agreements. what quantity would it set

d) for what values of the discount factor will the cartel be stable

Answer rating: 100% (QA)

Solution a To find the equilibrium quantities and profits of each firm we need to solve the followin... View the full answer