What does this example show us about the failed attempt at 'collusive pricing arrangement' due to prisoners' dilemma in the US airline industry, over the given period?

(4) Assume that the market demand and cost of the Cournot Duopolists are: P = 100 -0.5 (q +9₂), C₁=5q, and C₂ = 0.5q23 Find out the output and profit of firms 1 and 2 and industry Price level.

Construct a numerical example based on a linear demand function and two firms with identical, constant marginal costs. a) Use your model to show that, a Cournot duopolist can "do better" by producing the monopoly output, under the assumption that its competitor reacts and adjusts its output optimally. b) How does this result compare to what the Stackelberg model predicted?

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Suppose two firms compete as Bertrand duopolists for an identical product, where demand is given by Q = 5000 – 50P and both firms have marginal cost of 10 per unit of output. If firm 1 has capacity of 1500 and firm 2 has capacity of 2000, what will the equilibrium price be in this market?

5) Use a supply and demand diagram like in the slide titled "From monopoly to Cournot duopoly" to explain conceptually the supply decision that leads to a Cournot Nash equilibrium, and why it has lower price and total profits than the collusive (monopoly) supply. Optionally you can also use precise numbers: assume market demand behaves like P=36-3Q, (Q=Q1 +Q2), and the constant marginal cost is MC=18, then solve for price and profits, both under collusion and Cournot competition. Hint: you will need to solve for each oligopolist's supply decision contingent on that of the other, so-called best-response functions. You may consult the Perloff excerpt for the individual steps.

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