Reference no: EM131164733
There are two firms that compete over price (Bertrand)
The demand function is as follows: p=260-2Q
FC=0 and MC=20
(a) Solve for the one-period Nash equilibrium market price, quantity, and profit of each firm.
(b) What is the price, quantity, and profit of each firm if they collude to produce the monopoly output between the two of them?
(c) If firm 2 decides to cheat on the collusion assuming that the other firm continues to produce its half of the monopoly quantity, how much will firm 2 produce? What will be the market price and each firm’s profit?
(d) If the “game” between the two firms is repeated indefinitely, what does the prob- ability adjusted discount factor have to be in order for the collusive agreement to hold?
(e) Given your answer above, what is the bounds on the discount rate if both firms believe the future is given (Pr(future) = 1).
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