COMM/FRE 295
Oligopoly (Cournot/Stackelberg/Betrand)
Question #1
Two large farmers, A and B, produce wheat exclusively for a local village in
Saskatchewan. They are the only farmers in the local market for wheat. The
demand for wheat in the small village is given as follows:
P = 1,010 – Q,
where Q is the total supply measured in tons and P is the price in dollars per ton.
Each farmer’s MC = $10.
Assume that FC = 0 for each farmer.
a)
Derive the reaction function for Farmer A when the two farmers play
CournotNash quantity competition game.
If Farmer B chooses to
increase production by one unit, by how much will Farmer A choose to
change its optimal production?
b)
Derive the quantities of wheat supplied by each farmer when they decide
simultaneously about their quantities using CournotNash quantity
competition. Calculate the equilibrium price.
c)
Suppose Farmer A is able to plant his wheat in early spring, which enables him to
harvest it in late spring
before
farmer B plants his wheat. Calculate the new
respective quantities supplied and the new market price. Show that farmer A is
better off planting and harvesting his wheat before farmer B. Briefly explain why
this is the case.
d)
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 Winter '09
 RATNA
 Supply And Demand, Farmer B, Compare equilibrium quantities

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