Firm 1 and Firm 2 operate in the oligopolistic market and sell a heterogeneous product. They have agreed that the best solution for them would be to cooperate and to maximize together the joint profit from the whole market. The total production costs of the firms are described by: TC₁ = 4q1² and TC2 = 592² for q1, q2 ≥ 0, and zero otherwise. The market demand for the products is captured by the inverse demand functions: P₁ = 10 - 291 - 92 and P2 = 8 - 91 - 92. (a) Determine the production level of each firm and the prices of the products. (b) Do firms have any incentive to deviate from the cooperation agreement?
Firm 1 and Firm 2 operate in the oligopolistic market and sell a heterogeneous product. They have agreed that the best solution for them would be to cooperate and to maximize together the joint profit from the whole market. The total production costs of the firms are described by: TC₁ = 4q1² and TC2 = 592² for q1, q2 ≥ 0, and zero otherwise. The market demand for the products is captured by the inverse demand functions: P₁ = 10 - 291 - 92 and P2 = 8 - 91 - 92. (a) Determine the production level of each firm and the prices of the products. (b) Do firms have any incentive to deviate from the cooperation agreement?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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