Three firms produce identical products and compete in a market where the inverse demand function is P(q1, q2, q3) = 78 − q1− q2− q3. Each has a per-unit cost of 14 and zero fixed cost. They simultaneously choose quantities. In scenario (a), find the Nash equilibrium of this game and let A = firm 2's profit in the Nash equilibrium. In scenario (b), assume that the firms form a cartel, i.e., they act as a monopoly and split the profit evenly. If the total quantity produced by the cartel is Q, then the inverse demand is P(Q) = 78 - Q. Let B = firm 2's profit in the cartel. Calculate the value of A - B and enter your answer in the box below. Please round your answer to 3 decimal places (e.g., write 4/3 as 1.333).
Three firms produce identical products and compete in a market where the inverse demand function is P(q1, q2, q3) = 78 − q1− q2− q3. Each has a per-unit cost of 14 and zero fixed cost. They simultaneously choose quantities. In scenario (a), find the Nash equilibrium of this game and let A = firm 2's profit in the Nash equilibrium. In scenario (b), assume that the firms form a cartel, i.e., they act as a monopoly and split the profit evenly. If the total quantity produced by the cartel is Q, then the inverse demand is P(Q) = 78 - Q. Let B = firm 2's profit in the cartel. Calculate the value of A - B and enter your answer in the box below. Please round your answer to 3 decimal places (e.g., write 4/3 as 1.333).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Three firms produce identical products and compete in a market where the inverse demand function is P(q1, q2, q3) = 78 − q1− q2− q3. Each has a per-unit cost of 14 and zero fixed cost. They simultaneously choose quantities.
In scenario (a), find the Nash equilibrium of this game and let A = firm 2's profit in the Nash equilibrium.
In scenario (b), assume that the firms form a cartel, i.e., they act as a
Calculate the value of A - B and enter your answer in the box below. Please round your answer to 3 decimal places (e.g., write 4/3 as 1.333).
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