11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB respectively. a. Find the Cournot-Nash equilibrium and profit for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple single pricing to perfect price discrimination?

11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB respectively. a. Find the Cournot-Nash equilibrium and profit for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple single pricing to perfect price discrimination?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

11. Suppose there is a duopoly of two identical firms, A and B, facing a market inverse
demand of P = 140 – 0.5Q, and cost functions of CA = 20QA and Cg = 20QB
respectively.
a. Find the Cournot-Nash equilibrium and profit for each firm.
b. Suppose that A acts as the leader in a Stackelberg model and B responds.
What are the respective quantities and profits of each firm now? Is it
advantageous to move first?
c. If the firms were able to collude, how much additional profit could they earn
if they switch from simple single pricing to perfect price discrimination?
d. Graph and label equilibria on the inverse demand.

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