There are two firms that compete over quantity (Cournot) Demand Function P=260-2
ID: 1215981 • Letter: T
Question
There are two firms that compete over quantity (Cournot)
Demand Function P=260-2Q and MC=20
One-Period Nash Equilibrium Profits
Firm 1=3,200
Firm 2= 3,200
Profit of each firm if they collude to produce the monopoly output between the two of them
Firm 1=3,600
Firm 2=3,600
Profit if firm 2 decides to cheat on the collusion assuming that the other firm continues to produce its half of the monopoly quantity
Firm 2= 4,050
Firm 1=2,700
Using these profits, solve for the range of under which firms would still maintain their collusion if the FTC imposed a $1,000 fee for cartels, had a probability of 10% to investigate, and a 50% to successfully investigate conditional on investigating
Explanation / Answer
P=260-2Q and MC=20
Firm 1=3,200
Firm 2= 3,200