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5. Oligopoly

i. Nash
1. What is the MR equation for each firm?
2. What is the profit maximizing output level?
3. What is the market price?
4. What is the profit for each firm?
ii. Collusion
1. If both firms collude, how much does EACH firm produce?
(Suppose they split the total market output)
2. What is the profit in the collusion outcome for EACH firm?
(Assume they split the total profit)

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Solution Summary

The expert examines MR equations for firms and profit maximizing.

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Nash

1. Revenue = price X quantity

rev 1 = (3000 - Q1 - Q2)Q1

MR1 = d(rev 1)/dQ1 = 3000 - 2Q1 - Q2

similarly, MR2 = 3000 - 2Q2 - Q1

2. Profit max. output condition is MR = MC, so we have

3000 - 2Q1 - Q2 = ...

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