Oligopoly (Cournot Model) - Their costs are given by C 1 =...

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Comm 295 Practice Problems Oligopoly (Cournot Model) 1. Consider two firms facing the demand curve P = 10 - Q, where Q = Q 1 + Q 2 . The firms’ cost functions are C 1 (Q 1 ) = 4 + 2Q 1 and C 2 (Q 2 ) = 3 + 3Q 2 . a. Suppose both firms have entered the industry. What is the joint profit- maximizing level of output? How much will each firm produce? b. W h a t i s
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Unformatted text preview: Their costs are given by C 1 = 30Q 1 and C 2 = 30Q 2 , where Q 1 is the output of Firm 1 and Q 2 the output of Firm 2. Price is determined by the following demand curve: P = 150 Q, where Q = Q 1 + Q 2 . a. Find the Cournot-Nash equilibrium. Calculate the profit of each firm at this equilibrium. b. Suppose the two firms form a cartel to maximize joint profits. How many widgets will be produced? Calculate each firms profit. c. If firm 2's MC increases, how would the Cournot Nash equilibrium change? Draw a diagram to illustrate your result (No calculation is necessary)....
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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