(a) Firms A and B are Cournot duopolists producing a homogeneous good. The inverse market demand is given by P = 100-Q,

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A Firms A And B Are Cournot Duopolists Producing A Homogeneous Good The Inverse Market Demand Is Given By P 100 Q 1 (52.32 KiB) Viewed 20 times

(a) Firms A and B are Cournot duopolists producing a homogeneous good. The inverse market demand is given by P = 100-Q, where P is the market price and Q is the total quantity demanded. Each firm has marginal cost equal to 40 and there are no fixed costs. (1) [15 marks) Calculate the total industry output in this market. Derive also the market price, the total profit of the two firms and the consumer surplus. (ii) [10 marks] Suppose the two firms propose to merge to become a monopoly. Calculate the total industry output after the merger. Derive also the market price, profit and consumer surplus after the merger. Explain intuitively any changes in these variables if the merger occurs. (b) Ford and Toyota are considering producing a new type of electric car and their profits (in millions of £s) from entering or staying out of the market are Toyota Enter Not Enter Ford Enter 10,-40 250,0 Not Enter 0,200 0,0 where the first number in each cell is the profit of Ford and the second is the profit of Toyota. The two firms make their decisions simultaneously (1) [10 marks] What is (are) the Nash equilibrium (equilibria) in this game? Explain your answer. (ii) [10 marks) How would your answer change if the Japanese government committed to paying Toyota a lump sum subsidy of £50 million if and only if Toyota enters the market for this new type of car? Explain.