mpany B is $ .e., each firm assumes that the other

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand
function:
P=200-QA - QB
where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are
TCA = 1,500 + 55QA + Q₁²
Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case,
Company A will produce
units and sell at
Similarly, Company B will produce
At the optimum output levels, Company A earns total profits of $
total industry profits are $
At the optimum output levels, the marginal cost of Company A is $
Cournot Equilibrium
Company A
Company B
Total Industry
Selling price
The following table shows the long-run equilibrium if the firms act independently, as in the Cournot model (i.e., each firm assumes that the other
firm's output will not change).
Total industry output
Price Output Profits
($) (units) ($)
145
30
300
145
25
675
Total industry profits
55
units and sell at
$975
TCB = 1,200+20QB+2QB²
Compare the optimal solutions obtained in this exercise with the Cournot equilibrium given in the preceding table. What happens to the optimal selling
price, total industry output, and total industry profits when the two firms form a cartel instead of acting independently?
Increase Decrease No change
O
O
O
and Company B earns total profits of
O
and the marginal cost of Company B is $
Therefore, the
Transcribed Image Text:Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function: P=200-QA - QB where QA and QB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TCA = 1,500 + 55QA + Q₁² Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case, Company A will produce units and sell at Similarly, Company B will produce At the optimum output levels, Company A earns total profits of $ total industry profits are $ At the optimum output levels, the marginal cost of Company A is $ Cournot Equilibrium Company A Company B Total Industry Selling price The following table shows the long-run equilibrium if the firms act independently, as in the Cournot model (i.e., each firm assumes that the other firm's output will not change). Total industry output Price Output Profits ($) (units) ($) 145 30 300 145 25 675 Total industry profits 55 units and sell at $975 TCB = 1,200+20QB+2QB² Compare the optimal solutions obtained in this exercise with the Cournot equilibrium given in the preceding table. What happens to the optimal selling price, total industry output, and total industry profits when the two firms form a cartel instead of acting independently? Increase Decrease No change O O O and Company B earns total profits of O and the marginal cost of Company B is $ Therefore, the
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