Exercise 6.7.Suppose two identical companies produce wood stoves and they are the only ones on the market. Its costs are given by: C1 (q1 )=200q1 and C2 (q2) = 200q2. And the inverse market demand curve is: P=2000-2Q, where Q =q1 + q2Get the Cournot-Nash equilibrium. Calculate the profits of each company. Show graphically. Suppose that the two companies form a cartel to maximize joint profits. How many stoves will you produce? Calculate the profits of each company. Represent graphically. Managers now note that explicit agreements to collude are illegal. Each company must decide on its own whether to produce the amount of Cournot or that of the cartel.

Note - Since, part 3 is incomplete, first 2 subparts are solved. In economics, an equilibrium is a…

Answered: Exercise 6.7. Suppose two identical…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Exercise 6.7.

Suppose two identical companies produce wood stoves and they are the only ones on the market. Its costs are given by: C₁ (q₁ )=200q₁and C₂ (q₂) = 200q₂. And the inverse market demand curve is: P=2000-2Q, where Q =q₁+ q₂

Get the Cournot-Nash equilibrium. Calculate the profits of each company. Show graphically.
Suppose that the two companies form a cartel to maximize joint profits. How many stoves will you produce? Calculate the profits of each company. Represent graphically.
Managers now note that explicit agreements to collude are illegal. Each company must decide on its own whether to produce the amount of Cournot or that of the cartel.

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Managers now note that explicit agreements to collude are illegal. Each company must decide on its own whether to produce the amount of Cournot or that of the cartel.

1
Payoffs matrix
(Payoff 1, Payoff 2)
Cournot
Cartel
Cournot
2
Cartel

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