Each producing an identical good simultaneously

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Consider two firms, 1 and 2, each producing an identical good simultaneously. This good has market demand given by the inverse demand function , where is price, and is market quantity. represents the amount produced by firm . Suppose production cost is zero for both firms.

-Solve for the collusive outcome in which two firms split monopoly profits. Is the profit for each firm in the collusive outcome larger than in the non-collusive outcome?

-If it is a one-time competition and each firm can not observe the output of the other firm. Do you think firms will choose the quantities in the collusive equilibrium? Why?

Reference no: EM131174599

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