The inverse market demand is P=160 4Q. The firms have cost functions TC 1 = 8+12q
Fantastic news! We've Found the answer you've been seeking!
Question:
- The inverse market demand is P=160 – 4Q. The firms have cost functions
TC1 = 8+12q1+2q1²
TC2 = 8+12q2+2q2²
a. Determine monopoly profit-maximizing output for each firm.
-
- Determine the industry profit-maximizing output under collusion.
-
- Calculate the equilibrium price under collusion.
-
- Determine if the firms should collude. Assume your initial game is Cournot.
Joint profits
Profits Collusion = $1079.2
Profits Cournot = 1010.75
Profits Stackelberg = 971.17
Profit monopoly 1 = 904.67
Profits monopoly 2 = 904.67
Collude since profits are strictly higher for each firm.
- Assume firm 1 offers to buy firm 2. What is the maximum price firm 1 will pay? Assume your initial game is Stackelberg.
Make an offer that keeps firm 1 indifferent between operating as a Stackelberg or multi-plant monopoly. Firm one must be reimbursed $513.52 so the maximum is the difference between multi-plant monopoly and firm 1 as a Stackelberg.
Offer 1079.2 - 513.52 = 565.68
Related Book For
Posted Date: