*YOU ONLY NEED TO ANSWER QUESTION D* 1. Consider a market for water with two firms. We assume two firms can producee. In the equilibrium found in part d, find the non-cooperative market outcome:the good without any cost (TC = 0). The market demand schedule is given as:market quantity, price, and each firm's profit.Quantity (gallon)Price ($)3090408050706060Number of sellers & Market outcome:7050As a new firm enters the market, now there are three firms in the market.Colluding is not allowed by the government, so they are in competition.8040f. How much would each firm produce? [Hint: Begin with the cartel situation.0630Check if a firm can increase its profit by cheating.]1002011010Cartel:Assume that two firms are colluding, so both firms agree upon a contract thatthey produce the same amount of output.g. Find the non-cooperative market outcome: market quantity, price, and eachfirm's profit.a. How much would each firm produce if they form the cartel? Why?b. Find the cartel market outcome: market quantity, price, and each firm's profit.Competition:After they form the cartel, each firm can choose to cheat at the agreement or tofollow the cartel contract. Assume firms are always self-interested, and make onlyone-time decision in this game.c. Now, is there any incentive for a firm to cheat the other firm? Why? [Hint:Begin with the cartel situation. Check if a firm can increase its profit bycheating.]d. In the end, how much would each firm produce in the competition? In otherwords, find the Nash equilibrium. [Hint: Check if any firm has an incentive toincrease or decrease its supply for each output level.]

Equilibrium in a perfectly competitive industry achieves where the market demand curve and market…

d. In the end, how much would each firm produce in the competition? In other words, find the Nash equilibrium. [Hint: Check if any firm has an incentive to increase or decrease its supply for each output level.]

d. In the end, how much would each firm produce in the competition? In other words, find the Nash equilibrium. [Hint: Check if any firm has an incentive to increase or decrease its supply for each output level.]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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