Suppose there is a duopoly of two identical firms, A and B, facing a market inverse demand of P = 110 − Q/4 , and cost functions of C_A = 10Q_A and C_B = 10Q_B respectively. a. Plot the best response functions and find the Cournot-Nash equilibrium quantities, equilibrium price, and profits for each firm. b. Suppose that A acts as the leader in a Stackelberg model and B responds. What are the respective quantities and profits of each firm now? Is it advantageous to move first? c. If the firms were able to collude, how much additional profit could they earn if they switch from simple monopoly pricing to perfect price discrimination? d. Graph and label the cartel outcome, the Cournot outcome and the Stackelberg outcome on the inverse demand. Calculate the consumer surplus and deadweight loss in each case.
Suppose there is a duopoly of two identical firms, A and B, facing a market inverse
demand of P = 110 − Q/4 , and cost functions of C_A = 10Q_A and C_B = 10Q_B
respectively.
a. Plot the best response functions and find the Cournot-Nash equilibrium
quantities,
b. Suppose that A acts as the leader in a Stackelberg model and B responds.
What are the respective quantities and profits of each firm now? Is it
advantageous to move first?
c. If the firms were able to collude, how much additional profit could they earn
if they switch from simple
d. Graph and label the cartel outcome, the Cournot outcome and the
Stackelberg outcome on the inverse demand. Calculate the consumer
surplus and
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