Consider a market with two identical firms, firm A and firm B. The market demand...
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Consider a market with two identical firms, firm A and firm B. The market demand is p=26-2q where Q=qa+qb. The marginal costs as well as average costs are constant: MCa=MCb=2=ACa=ACb.
a. suppose they do not cooperate and move simultaneously by setting their output levels. Find the reaction (best-response)) function for each firm and solve for the cournot-nash equilibrium output levels and price.
b. suppose they collude. find the profit maximizing output and price
c. suppose they evenly split the collusive output. is this sustainable outcome? why/why not
d. suppose the firms follow bertrand pricing model. find the equilibrium output and price
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