Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure below. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars are taken from the low-price firm and given to the high-price firm. RareAir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 Instructions: Enter your answer as a whole number. What is the smallest amount that the fine X can be such that both firms will want to always set the high price? $O million Uptown's price strategy

Consider a "punishment" variation of the two-firm oligopoly situation shown in the figure below. Suppose that if one firm sets a low price while the other sets a high price, then the firm setting the high price can fine the firm setting the low price. Suppose that whenever a fine is imposed, X dollars are taken from the low-price firm and given to the high-price firm. RareAir's price strategy High Low $12 $15 A B High $12 $6 $6 $8 Low $15 $8 Instructions: Enter your answer as a whole number. What is the smallest amount that the fine X can be such that both firms will want to always set the high price? $O million Uptown's price strategy

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What are the incentives for firms in an oligopoly to collude or work together? Explain a past case on price collusion.
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Compare the quantity and price of an oligopoly tothose of a perfectly competitive market.
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Please no written by hand solution Suppose two firms compete in quantities (Cournot). Market demand is given by P = 260 − 2Q, where Q = q1 + q2. Both firms have constant MC = AT C = 20.a. Solve for the Cournot equilibrium and find the Cournot equilibrium profits for each firm.b. Now suppose the two firms formed a cartel. What would be the profits for each firm then?c. If firm 2 sticks to the cartel agreement (quantity), then what is the best response for firm 1 (if firm 1 were to deviate)? Find the profits for firm 1 from deviating.d. How large must the probability-adjusted discount factor be in order for the cartel to be stable?e. How would the answer to part d. change if the two firms were competing in prices (Bertrand)?Please answer all steps, because no too much detailed answers required.
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