Oligopoly

# Oligopoly - COMM/FRE 295...

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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 Cournot-Nash 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 Cournot-Nash 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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Oligopoly - COMM/FRE 295...

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