5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot duopoly" to explain conceptually the supply decision that leads to a Cournot Nash equilibrium, and why it has lower price and total profits than the collusive (monopoly) supply. Optionally you can also use precise numbers: assume market demand behaves like P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price and profits, both under collusion and Cournot competition. Hint: you will need to solve for each oligopolist's supply decision contingent on that of the other, so-called best-response functions. You may consult the Perloff excerpt for the individual steps.
5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot duopoly" to explain conceptually the supply decision that leads to a Cournot Nash equilibrium, and why it has lower price and total profits than the collusive (monopoly) supply. Optionally you can also use precise numbers: assume market demand behaves like P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price and profits, both under collusion and Cournot competition. Hint: you will need to solve for each oligopolist's supply decision contingent on that of the other, so-called best-response functions. You may consult the Perloff excerpt for the individual steps.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.6P
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Question
![5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot
duopoly" to explain conceptually the supply decision that leads to a Cournot Nash
equilibrium, and why it has lower price and total profits than the collusive
(monopoly) supply.
Optionally you can also use precise numbers: assume market demand behaves like
P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price
and profits, both under collusion and Cournot competition. Hint: you will need to
solve for each oligopolist's supply decision contingent on that of the other, so-called
best-response functions. You may consult the Perloff excerpt for the individual steps.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F56e7940b-bc81-43d8-915c-55572fca8d0b%2Face0bc10-f9a3-49c6-8232-c74c64ec4b37%2Fow5tysd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot
duopoly" to explain conceptually the supply decision that leads to a Cournot Nash
equilibrium, and why it has lower price and total profits than the collusive
(monopoly) supply.
Optionally you can also use precise numbers: assume market demand behaves like
P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price
and profits, both under collusion and Cournot competition. Hint: you will need to
solve for each oligopolist's supply decision contingent on that of the other, so-called
best-response functions. You may consult the Perloff excerpt for the individual steps.
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