Suppose the market demand for a product is Q(P) = 120-P. There are no fixed costs of operating in this industry, but there are variable costs VC(Q) = 200. (a) What is a monopolist' profit-maximising quantity Q and profits ? (b) Suppose there are two firms A and B in this industry, with identical costs functions (as above), who are thinking of colluding to maintain the monopoly quantity. What profits would they be able to make if they would split the monopoly quantity equally, i.e. QA = QB=QM/2? (c) Suppose that the firms engage in Cournot competition: Write down each firm's best response function and derive the Nash equilibrium quantities.

Suppose the market demand for a product is Q(P) = 120-P. There are no fixed costs of operating in this industry, but there are variable costs VC(Q) = 200. (a) What is a monopolist' profit-maximising quantity Q and profits ? (b) Suppose there are two firms A and B in this industry, with identical costs functions (as above), who are thinking of colluding to maintain the monopoly quantity. What profits would they be able to make if they would split the monopoly quantity equally, i.e. QA = QB=QM/2? (c) Suppose that the firms engage in Cournot competition: Write down each firm's best response function and derive the Nash equilibrium quantities.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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