Reference no: EM133614178
Problem
Consider a small northern community with two grocery stores Able Produce (i) and Baker Produce (ii). The products of the two firms are practically identical. The market demand is P = 43 - 4Q, where Q is in thousands of bags of groceries per month. The firms' cost functions are Ca = Qa2 - Qa and Cb = 2Qb2 - Qb.
1. If the two firms behaved as perfect competitors, what would be their outputs, the market price, and their profits?
2. If the two firms behaved as Cournot competitors, what would be their outputs, the market price, and their profits?
3. If Able acted as a Stackelberg market leader (it has greater power because its lower cost structure means it can undercut prices and punish Baker if Baker steps out of line), what would be their outputs, the market price, and their profits?
4. If the two firms decided to collude and operate as a cartel, sharing the profits equally, what would be their outputs, the market price, and each of their profits?
5. What type of competition do you think is most likely?
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