The demand curve for higher education in Tallahassee is P=120-2Q. Assume the only two colleges in town are FSU and FAMU. Each university faces the cost function TC=6Q. Copy the table below to your homework and fill in the blanks for the three scenarios described in a through c. Be sure to show your work for each scenario.
A. Both colleges get together and successfully collude to fix price at a profit maximizing level.
B. Both colleges assume that the other will hold the present tuition constant despite what the competition does.
C. Both colleges assume that the other will hold the present enrolment constant despite what the competition does. Additionally, for part c only, FAMU faces a new cost function TC=6Q+.25Q^2. FSU's cost function remains the same as in parts a and b.
D. Now FAMU assumes FSU will hold enrolment fixed, and FSU knows that FAMU is expecting this. Both have the same cost curve again, as in parts a and b.
E. For parts a through d, state the oligopoly model under which each scenario is analyzed.