Suppose firms A, B, and C set prices while facing per-period demand of Q = 200 - P, which yields a MR curve MR = 200 – 2Q for a monopolist. When setting prices non-cooperatively, the firms choose their prices simultaneously. All firms have MC = 20. The firms are currently involved in a cartel that sets the monopoly price and divides quantity evenly among the firms. The firms enforce their cartel arrangement with a grim trigger strategy. The Department of Justice (DOJ) has just started an antitrust division that is designed to break up cartels. The DOJ successfully detects and prosecutes a cartel with probability s, and prosecuted cartels receive the fine F and are prevented from ever colluding again. The firms believe that their interaction will continue forever (p = 1.0), and they discount future periods at R= 0.80. Which strategic variable are the firms choosing? What type of competition is this? O A. Quantity; Cournot O B. Quantity; Bertrand O C. Price; Cournot O D. Price; Bertrand I. II. What are the firms' per-period profits from: $ $. $ operating collusively and setting the monopoly price unilaterally defecting from the cartel choosing non-cooperative equilibrium prices III. In the absence of antitrust prosecution, are the three firms able to maintain a cartel while using the grim trigger strategy for the given R and p? O Yes O No
Suppose firms A, B, and C set prices while facing per-period demand of Q = 200 - P, which yields a MR curve MR = 200 – 2Q for a monopolist. When setting prices non-cooperatively, the firms choose their prices simultaneously. All firms have MC = 20. The firms are currently involved in a cartel that sets the monopoly price and divides quantity evenly among the firms. The firms enforce their cartel arrangement with a grim trigger strategy. The Department of Justice (DOJ) has just started an antitrust division that is designed to break up cartels. The DOJ successfully detects and prosecutes a cartel with probability s, and prosecuted cartels receive the fine F and are prevented from ever colluding again. The firms believe that their interaction will continue forever (p = 1.0), and they discount future periods at R= 0.80. Which strategic variable are the firms choosing? What type of competition is this? O A. Quantity; Cournot O B. Quantity; Bertrand O C. Price; Cournot O D. Price; Bertrand I. II. What are the firms' per-period profits from: $ $. $ operating collusively and setting the monopoly price unilaterally defecting from the cartel choosing non-cooperative equilibrium prices III. In the absence of antitrust prosecution, are the three firms able to maintain a cartel while using the grim trigger strategy for the given R and p? O Yes O No
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:Suppose firms A, B, and C set prices while facing per-period demand of Q = 200 - P, which
yields a MR curve MR = 200 – 2Q for a monopolist. When setting prices non-cooperatively,
the firms choose their prices simultaneously. All firms have MC = 20. The firms are currently
involved in a cartel that sets the monopoly price and divides quantity evenly among the
firms. The firms enforce their cartel arrangement with a grim trigger strategy.
The Department of Justice (DOJ) has just started an antitrust division that is designed to
break up cartels. The DOJ successfully detects and prosecutes a cartel with probability s,
and prosecuted cartels receive the fine F and are prevented from ever colluding again.
The firms believe that their interaction will continue forever (p = 1.0), and they discount
future periods at R 0.80.
I.
Which strategic variable are the firms choosing? What type of competition is this?
O A. Quantity; Cournot
O B. Quantity; Bertrand
C. Price; Cournot
O D. Price; Bertrand
II.
What are the firms' per-period profits from:
$
$.
$
operating collusively and setting the monopoly price
unilaterally defecting from the cartel
choosing non-cooperative equilibrium prices
III.
In the absence of antitrust prosecution, are the three firms able to maintain a cartel
while using the grim trigger strategy for the given R and p?
O Yes
O No
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education