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Suppose that the Town of Pescadero has two suppliers of wood Big Creek Lumber, Inc. and Coastal Lumber, Inc.. The demand for wood in the town is Q = 130 - P. Each has average and marginal costs equal to $10.
a) Cartel: If Big Creek and Coastal form a cartel how much will each produce and what will be the price? Calculate profits for each.
b) Cournot: What is the Cournot equilibrium outcome for this duopoly? What are equilibrium prices and quantities for each wood supplier? Calculate each firm's profits.
c) Stackelberg: Suppose that Big Creek becomes the Stackelberg leader in the market. What are equilibrium quantities for each producer? Calculate each firm's profits.
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