Maple syrup producers that engage in cournot competition

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Reference no: EM13898490

Consider two maple syrup producers that engage in Cournot competition. Inverse demand for maple syrup is given by P(Q) = 16 − Q and the marginal cost of each producer is 4. The two producers compete with each other each period by choosing an amount of maple syrup to produce, q1 and q2, respectively.

(a) If the producers do not collude, what is the Cournot equilibrium amount of syrup produced by each firm every period and what are the lifetime profits of each producer?

(b) If the discount factor of each producer is δ = 0.2, will the firms be able to sustain collusion using the grim punishment strategy?

(c) How much would the producers together be willing to pay to lobby the government to implement a maple syrup quota system that limits each producer to producing 3 units of maple syrup a month?

(d) Do you expect jam producers to support, be indifferent to, or be against the maple syrup cartel? Explain your answer.

Reference no: EM13898490

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