*You only need to answer question B* Oligopoly2. Consider a duopoly market. Two firms are selling identical products and all costs areassumed to be zero for simplicity. Market demand schedule is given in the followingtable. Note that firms always choose an integer value for the quantity of production.QuantityPriceTotal Profit3$1241186748.29.10a. Fill in the column of total profit.b. Assume both firms agree to form a cartel, so both agree to produce the same amount ofoutput. Find the market outcome (market output, price, and each firm's profit) underthe cartel.c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increaseor decrease output from the cartel situation.d. Eventually, it results in a Nash equilibrium when the two firms are in a competition. Findthe non-cooperative market outcome (market output, price, and each firm's profit).e. As two new firms selling identical products enter the market, there are in total fourfirms in the market. All of them make their own production decision simultaneously.What will be the new equilibrium market outcome? (Find market output, price, andeach firm's profit, respectively.) [Hint: Assume that these four firms form a cartel, andcheck if there is an incentive for any firm to change its output.]

Duopoly refers to market structure in which there are only two large firms in the market. The firms…

Answered: b. Assume both firms agree to form a…

b. Assume both firms agree to form a cartel, so both agree to produce the same amount of output. Find the market outcome (market output, price, and each firm's profit) under the cartel.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

*You only need to answer question B*

Oligopoly
2. Consider a duopoly market. Two firms are selling identical products and all costs are
assumed to be zero for simplicity. Market demand schedule is given in the following
table. Note that firms always choose an integer value for the quantity of production.
Quantity
Price
Total Profit
3
$12
4
11
8
6
7
4
8.
2
9.
10
a. Fill in the column of total profit.
b. Assume both firms agree to form a cartel, so both agree to produce the same amount of
output. Find the market outcome (market output, price, and each firm's profit) under
the cartel.
c. Is this cartel stable? In other words, explain if there is an incentive for a firm to increase
or decrease output from the cartel situation.
d. Eventually, it results in a Nash equilibrium when the two firms are in a competition. Find
the non-cooperative market outcome (market output, price, and each firm's profit).
e. As two new firms selling identical products enter the market, there are in total four
firms in the market. All of them make their own production decision simultaneously.
What will be the new equilibrium market outcome? (Find market output, price, and
each firm's profit, respectively.) [Hint: Assume that these four firms form a cartel, and
check if there is an incentive for any firm to change its output.]

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