this question is one question with several parts **Duopoly Quantity Game**Seagate and Western Digital (WD) run a cartel producing identical 1 TB hard drives. The demand for hard drives is given by the equation: \[ Q = 17 - P \]Both companies have a marginal cost (MC) of 2 and no fixed costs, making the average total cost (ATC) also equal to 2.It is verified that together, the firms maximize their combined profit by each producing 3.75 hard drives.**Questions:**1. What profit does Seagate make with this cartel agreement? $____2. Is the cartel agreement a Nash equilibrium? - a. yes - b. no, Seagate wants to decrease production - c. no, Seagate wants to increase production - d. no, Seagate does not want to change production3. Suppose the cartel falls apart after the CEO of Seagate and the CFO of Western Digital get into a fight over whose homemade BBQ sauce tastes better. The companies are now very angry at each other and cannot cooperate. - Western Digital ends up producing 5 hard drives. What is Seagate’s best response? ____ hard drives. - (The answer is a whole number between 4 and 8, inclusive, so calculate Seagate’s profit for each option. A table and/or spreadsheet can be used to organize work.)

Answers (Ans-9) Let, Seagate = Firm 1 Western digital = Firm 2 Q = 17 – P MC = 2 = ATC Q…

s. The demand for hard drives is Q = 17 – P. They both have MC = 2 and no fixed cost so AT erified that together the firms maximize their (combined) profit by each making 3.75 hard profit does Seagate make with this cartel agreement? $ inued) Is the cartel agreement a Nash equilibrium? , Seagate wants to decrease production

s. The demand for hard drives is Q = 17 – P. They both have MC = 2 and no fixed cost so AT erified that together the firms maximize their (combined) profit by each making 3.75 hard profit does Seagate make with this cartel agreement? $ inued) Is the cartel agreement a Nash equilibrium? , Seagate wants to decrease production

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

this question is one question with several parts

**Duopoly Quantity Game**

Seagate and Western Digital (WD) run a cartel producing identical 1 TB hard drives. The demand for hard drives is given by the equation:

\[ Q = 17 - P \]

Both companies have a marginal cost (MC) of 2 and no fixed costs, making the average total cost (ATC) also equal to 2.

It is verified that together, the firms maximize their combined profit by each producing 3.75 hard drives.

**Questions:**

1. What profit does Seagate make with this cartel agreement? $____

2. Is the cartel agreement a Nash equilibrium?
- a. yes
- b. no, Seagate wants to decrease production
- c. no, Seagate wants to increase production
- d. no, Seagate does not want to change production

3. Suppose the cartel falls apart after the CEO of Seagate and the CFO of Western Digital get into a fight over whose homemade BBQ sauce tastes better. The companies are now very angry at each other and cannot cooperate.

- Western Digital ends up producing 5 hard drives. What is Seagate’s best response? ____ hard drives.
- (The answer is a whole number between 4 and 8, inclusive, so calculate Seagate’s profit for each option. A table and/or spreadsheet can be used to organize work.)

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