Suppose two firms compete in quantities (Cournot) in a market in which demand is described by: P=260-2Q. each firm incurs no fixed cost but has a marginal cost of 20. Now imagine they collude to produce the monopoly output. Suppose that after the cartel is established, firm 1 decides to cheat on the collusion, assuming the other firm will continue to produce its half of the monopoly output. What will be firm 1's profit if firm 2 continues producing the monopoly outcome? a. 4500 b. 5200 c.4200 d. 4050 Should firm 2 respond and increas their quantity? Yes or No

Suppose two firms compete in quantities (Cournot) in a market in which demand is described by: P=260-2Q. each firm incurs no fixed cost but has a marginal cost of 20. Now imagine they collude to produce the monopoly output. Suppose that after the cartel is established, firm 1 decides to cheat on the collusion, assuming the other firm will continue to produce its half of the monopoly output. What will be firm 1's profit if firm 2 continues producing the monopoly outcome? a. 4500 b. 5200 c.4200 d. 4050 Should firm 2 respond and increas their quantity? Yes or No

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter9: Monopolistic Competition And Oligoply

Section: Chapter Questions

Problem 16SQ

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The managers of these firms realize that explicit agreements to collude are illegal.Each firm must decide on its own whether to produce the Cournot quantity or the cartel quantity.To aid in making the decision, the manager of Firm A constructs a payoff matrix like the realone below. Fill in each box with the (profit of Firm A, profit of Firm B). Given this payoff matrix,what output strategy is each firm likely to pursue?
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