Two firms sells an identical product. The demand function for each firm is given: Q = 20 - P, where Q = q1 + q2 is the market demand and P is the price. The cost function for reach firm is given: TCi = 10 + 2qi for i = 1, 2. a) If these two firms collude and they want to maximize their combined profit, how much are the market equilibrium quantity and price? b) If these two firms decide their production simultaneously, how much does each firm produce? What is the market equilibrium price? c) If Firm 1 is a leader who decides the production level first and Firm 2 is a follower, how much does each firm produce? What is the market equilibrium price?

Two firms sells an identical product. The demand function for each firm is given: Q = 20 - P, where Q = q1 + q2 is the market demand and P is the price. The cost function for reach firm is given: TCi = 10 + 2qi for i = 1, 2. a) If these two firms collude and they want to maximize their combined profit, how much are the market equilibrium quantity and price? b) If these two firms decide their production simultaneously, how much does each firm produce? What is the market equilibrium price? c) If Firm 1 is a leader who decides the production level first and Firm 2 is a follower, how much does each firm produce? What is the market equilibrium price?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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