Question

The can industry is composed of two firms. Suppose that the demand curve for cans is P= 100- Q and total cost function of each firm is TC = 2 + 15q.

b) If only one firm enters new market, how much will each firm produce and will make the profit?

c) If both enter the new market, how much will each firm produce and will make the profit?

e) If these two firms collude and they want to maximize their combined profit, how much will the firm A produce? And Profit?

f) How much will the Firm B produce?

g) Is this collusion would work? Why or why not?

h) If the Firm A moves first, how much profit for each firm will change? Construct the game tree and find Nash EQ

Answer 1

MC- 15 then 42.5 & 15 o 00 100.0 ATC 24159 If there is only one prin MR=100-20 MREMC 10o-2015 oty & lenie = 100-42.5=57.5 = 57.5142.5) –15142.5)-2 = 1804.25 62 1 = 1000, -0,2 - Q Q -2-150 100-20,0 101 = 85 de similady (0-850 Solving 0,085 - {85-de] 85+0, e 0 = 85 280 3333 = 0 & P = 43.333 11 12 2 = ( 43 33315) 28-3333-2=8007 e) If two forms collude then di=0=21.25 4 pa 87.5 T, = 2 = 901.125 OA = 21.25 82 OB 21.25 Collussion con bestable in long run 4 g