2) Assume firms' marginal and average costs are constant and equal to c and thatinverse market demand is given by P = a bQ where a, b>0.a. Suppose the market is served by two firms acting in a cartel. Calculate the profit-maximizing:i. Priceii.iii. Profitb. Suppose now the market is served by 2 firms (one leader, and one follower) thatchoose quantities for their identical products. Calculate:i. The Nash equilibrium quantities for the Stackelberg duopolistsii.Quantityiv. Firm profitMarket outputMarket pricec. Suppose now the market is served by 2 firms that choose quantities for theiridentical products simultaneously. Calculate:iv.i. The Nash equilibrium prices for Cournot duopolistsii.Firm outputMarket outputFirm profitii.iii.iv.d. Suppose now the market is served by k firms that choose quantities for theiridentical products simultaneously. Calculate:i. The Nash equilibrium quantities for the Cournot firms as functions of k.Market output and price as a function of kFirm profit as a function of kUsing your answers in i, ii, iii and iv, describe what happen to firm output,market output, market price and firm profit as the number of firmsincreases.

The firm marginal cost and average cost are equal to c. ⇒AC=MC=c where c>0Inverse market demand:…

2) Assume firms' marginal and average costs are constant and equal to c and that inverse market demand is given by P = a - bQ where a, b>0. a. Suppose the market is served by two firms acting in a cartel. Calculate the profit- maximizing: i. Price ii. iii. Quantity Profit

2) Assume firms' marginal and average costs are constant and equal to c and that inverse market demand is given by P = a - bQ where a, b>0. a. Suppose the market is served by two firms acting in a cartel. Calculate the profit- maximizing: i. Price ii. iii. Quantity Profit

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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