An industry consists of two firms. The demand function for the product of firm i is qi = 24 - 5 pi + 2 p j . The marginal cost of production for each firm is zero.
(a) Find the price best-response function for firm i.
(b) Assume the firms compete over prices once; find the Nash equilibrium in prices.
(c) Find the collusive prices.
(d) Draw a diagram that illustrates parts (a) through (c).
(e) What are collusive profits? Bertrand profits?
(f) What is the optimal defection from the collusive agreement?