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Suppose two firms (Firm 1 and Firm 2) are producing a product. The total demand is:...

Suppose two firms (Firm 1 and Firm 2) are producing a product. The total demand is: Q = 110 –10P, where Q = Q1 + Q2. Each of the two firms has the cost function TC = 5Q. Based on the information given, calculate the equilibrium P, Q, Q1, Q2, Profit1 and Profit2 under monopoly (collusion), Cournot, and Stackelberg. For the Stackelberg model, assume that Firm 1 is the leader and Firm 2 is the follower. Show all your workings to gain full marks.

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Answer #1

Given & 11o- lop - (2 where whine 8. Q, + de TC- :Mca 8 TC if they collude, then they will act as a monopolist rimizing condin (11-042,-0.10.10. - 52 ir maxing quantity 5 best response fr. for firm a 8r. 11- 0.2Q -0.1 des Q6-0.18m 10 0.2 30-0.5 Similc) firm 1 the stackle berg leader will choose output a reaction to max. frm 2 its profits sit f max PQ, - c(Q) sit Q2330-0.5Q

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