* Suppose there are two identical firms in an industry who compete by setting quantities. The output of firm 1 is denoted by q and that of firm 2 is denoted by q Each firm faces a constant marginal cost of 3. Let Q denote total output. le Q-+ The inverse demand curve in the market is given by (a) Find the Cournot Nash equilibrium quantity produced by each firm and the market price. (b) If the firms could collude, what would be the total output in the mar ket? Assuming each firm produces half of the collusive output, what is the profit of each firm? (c) Suppose each firm produces half of the collusive output identified in part (b). Firm 1 considers a deviation from this arrangement. What would be the best deviating output of firm 1 and its deviation profit?

* Suppose there are two identical firms in an industry who compete by setting quantities. The output of firm 1 is denoted by q and that of firm 2 is denoted by q Each firm faces a constant marginal cost of 3. Let Q denote total output. le Q-+ The inverse demand curve in the market is given by (a) Find the Cournot Nash equilibrium quantity produced by each firm and the market price. (b) If the firms could collude, what would be the total output in the mar ket? Assuming each firm produces half of the collusive output, what is the profit of each firm? (c) Suppose each firm produces half of the collusive output identified in part (b). Firm 1 considers a deviation from this arrangement. What would be the best deviating output of firm 1 and its deviation profit?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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