Problem
Using the Conjectural Variations model, answer the following: )
a) Cooperative Conjectural Variations: If both firms match one another's quantityrestrictions (dq2/dq1 = dq1/dq2 = +1), what will be the industry output (q1 + q2)? If the firms colluded to form a monopoly, what will be the industry output (qm)? How does q1 + q2 compare with qm?
b) Competitive Conjectural Variations: If each firm assumes that if it reduced outputby 1 unit, the other firm will increase output by 1, (dq2/dq1 = dq1/dq2 = -1), what willbe the industry output (q1 + q2)? If the firms were in perfect competition with eachother, what will be the industry output (qpc)? How does q1 + q2 compare with qpc?
c) Cournot Conjectural Variations: Between these two extremes, if each firm takesthe other's output to be given, (dq2/dq1 = dq1/dq2 = 0), what will be the industryoutput (q1 + q2)? If the firms were Cournot competitors, what will be the industryoutput (qc)? How does q1 + q2 compare with qc?
d) Consistent Conjectural Variations: If we don't know how firms conjecture abouteach other's decisions, what is an equilibrium set of conjectural variations (dq2/dq1 =dq1/dq2 =?). Does this match with any of the cases above (a, b, c)? Discuss the result.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.