Assume the market demand curve can be written as P = 120 – Q and there are two %3D identical firms (A and B) in the industry producing the same product with identical cost structure MC = AC = 0. Suppose these two firms can choose to (i) produce the cartel output or (ii) cheat on the cartel output by producing 10 extra units of output. Calculate price, output, and profit for these firms in each possible outcome and put these outcomes in a payoff matrix. Explain how you can determine the equilibrium if these firms interact only once and the characteristics of this equilibrium. Explain how you can determine the equilibrium these firms interact repeatedly.

Assume the market demand curve can be written as P = 120 – Q and there are two %3D identical firms (A and B) in the industry producing the same product with identical cost structure MC = AC = 0. Suppose these two firms can choose to (i) produce the cartel output or (ii) cheat on the cartel output by producing 10 extra units of output. Calculate price, output, and profit for these firms in each possible outcome and put these outcomes in a payoff matrix. Explain how you can determine the equilibrium if these firms interact only once and the characteristics of this equilibrium. Explain how you can determine the equilibrium these firms interact repeatedly.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.1P

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