A9 Gamma and Zeta are the only two widget manufacturers in the world. Each firm has a cost function given by: C(q)- 10+10q+q², where qis number of widgets produced. The market demand for widgets is represented by the inverse demand equation: P = 100-Q where Qq1 + q2 is total output. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournotoligopolists).=a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm?Equilibrium quantity for each firm.priceprofitb) It occurs to the managers of Gamma and Zeta that they could do a lot better by colluding. If the two firms were to collude in asymmetric equilibrium, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profitfor each firm in this case?Equilibrium quantity for each firmprice:profitc) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that widgets are perishable, i.e.one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profitassociated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Do not round theother responses.Cheating quantity, cheating price.cheating profitdiscount factor

We have here:- Total cost=TC=10+10q+q2 Inverse demand function=P=100-Q=100-q1-q2 marginal…

Gamma and Zeta are the only two widget manufacturers in the world. Each firm has a cost function given by: C(q)- 10+10q+q², where a is number of widgets produced. The market demand for widgets is represented by the inverse demand equation: P-100-Q where Q- q1+q2 is total output. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm?

Gamma and Zeta are the only two widget manufacturers in the world. Each firm has a cost function given by: C(q)- 10+10q+q², where a is number of widgets produced. The market demand for widgets is represented by the inverse demand equation: P-100-Q where Q- q1+q2 is total output. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot oligopolists). a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Gamma and Zeta are the only two widget manufacturers in the world. Each firm has a cost function given by: C(q)- 10+10q+q², where q
is number of widgets produced. The market demand for widgets is represented by the inverse demand equation: P = 100-Q where Q
q1 + q2 is total output. Suppose that each firm maximizes its profits taking its rival's output as given (i.e. the firms behave as Cournot
oligopolists).
=
a) What will be the equilibrium quantity selected by each firm? What is the market price? What is the profit level for each firm?
Equilibrium quantity for each firm
.price
profit
b) It occurs to the managers of Gamma and Zeta that they could do a lot better by colluding. If the two firms were to collude in a
symmetric equilibrium, what would be the profit-maximizing choice of output for each firm? What is the industry price? What is the profit
for each firm in this case?
Equilibrium quantity for each firm
price:
profit
c) What minimum discount factor is required for firms to find it worthwhile to collude? (You can assume that widgets are perishable, i.e.
one period's output must be sold in the same period). Find also the optimal quantity that cheating firm want to produce, price and profit
associated with this quantity. Round the discount factor to the first figure after the decimal sign (0.1, 0.2, 0.3, etc.) Do not round the
other responses.
Cheating quantity
, cheating price
.cheating profit
discount factor

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