- 5 Pts. Explain why cartels are potentially profitable but unstable and difficult to sustain.
- 5 Pts. Describe how managers can engage in and sustain tacit collusion to boost their prices and economic profit.
- 15 Pts. Duopoly quantity-setting firms face the inverse market demand function p = 80 - 0.5 (q1 + q2). Each firm has a marginal cost of $20 per unit. What type of oligopoly is this? What is the equilibrium price, qty and economic profit?
- If firms produce identical products and have the same constant marginal cost explain why the Bertrand equilibrium price and market quantity are the same regardless of the number of firms.
- Suppose Canada Regional Jet and Embraer Jets have constant marginal costs of $10 per unit. Firm 1 faces a demand function of q1 = 100 - 2p1 + p2, where q1 is Firm 1’s output, p1 is Firm 1’s price, and p2 is Firm 2’s price. Similarly, the demand function Firm 2 faces is q2 = 100 - 2p2 + p1. What type of oligopoly is this? What is the equilibrium price, qty and economic profit?
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