Q. 1. There are two firms in an business producing identical products. Market inverse demand curve is P(Q) = 1-Q where Q= q1+q2. Total charge functions for the two firms are TC(q1)= c1q1 and TC(q2)=c2q2
a) Obtain every firm's best response function
b) Discover cournot equilibrium
c) What profit would each firm beneath Cournot equilibrium?
2. Suppose a duopoly and let demand be specified by P=A-BQ. In accumulation both firms have same marginal cost c. Interaction between the two firms will be frequent infinite. Both firms play a grim trigger strategy: they conspire and play cooperative action upon that firms agreed as long as both firms always stick to the agreement. Nevertheless, if any firm should deviate from the conformity then they will revert to Nash equilibrium forever.
a) If firms conspire describe the profit of each firm?
b) Assume firms compete in quantities. If firm 1 deviates from collusion in one period, what is the profit of firm 1 in that period or in subsequent periods?
c) What condition must the discount factor satisfy for collusion to be sustained if the firms compete in quantities?
d) What condition must the discount factor satisfy for collusion to be sustained if the firms compete in prices?