A duopoly exists in the market for lumber in a town. It costs the first company, Big Cutters, $16 per cord of wood while it costs the second company, Pine Stackers, $10 per cord of wood. The local market demand curve for wood is Q-31,000-100P. Assume each has the capacity to serve the entire market and that they can only price in whole dollar amounts (i.e.$30, not $29.99). Assume initially that Cutters and Stackers decide to collude and split the market.
Economics: Industrial Economics
Question:
A duopoly exists in the market for lumber in a town. It costs the first company, Big Cutters, $16 per cord of wood while it costs the second company, Pine Stackers, $10 per cord of wood. The local market demand curve for wood is Q-31,000-100P. Assume each has the capacity to serve the entire market and that they can only price in whole dollar amounts (i.e.$30, not $29.99).
Assume initially that Cutters and Stackers decide to collude and split the market.
- How many cords of wood will they sell?
Choices:
A. 12,000
B. 9,000
C. 15,000
D. 20,000
2. What will be the price they charge?
Choices:
A. 190
B. 210
C. 110
D. 160
3. How much will Big Cutters produce?
Choices:
A. 9,000
B. 4,500
C. 0
D. 15,000
Now assume that collusion is not possible.
4. What is the Nash Equilibrium quantity that Pine Stackers
Choices:
A. 0
B. 15,300
C. 14,700
D. 29,500
5. What is the Nash
Choices:
A. 15
B. 112
C. 11
D. 157
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