2. There are two firms in the market for cement which has demand given by P = 260-20 where Q – 91 +42 is the total outpu

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2 There Are Two Firms In The Market For Cement Which Has Demand Given By P 260 20 Where Q 91 42 Is The Total Outpu 1 (429.81 KiB) Viewed 32 times

2. There are two firms in the market for cement which has demand given by P = 260-20 where Q – 91 +42 is the total output in the market. Both of the firms have constant marginal cost c= 20 and the two firms compete in quantities (Cournot competition). Assume that this market game is being played infinitely many times by the two firms I a. Suppose that the two firms colluded and agreed to each produce half of the monopoly output. Solve for the value of collusion vc and the value of deviation VD, What is the minimum discount factor 8 required to sustain collusion? (10 pts) b. Now suppose that the government forms an antitrust authority whose job is to prevent the firs from colluding. This authority could detect collusion with probability 4 0.1 but for political reasons, the largest fine they could impose on a firm caught colluding is F 2500. What is the highest possible discount value 8 of firms that they could successfully prevent from colluding. (5 pts) c. Suppose that the antitrust authority could detect collusion with probability q-0.1. What is the minimum fine F that the authority could impose in order to fully prevent collusion? (5 pts) c. Suppose that the government's antitrust authority only cares about consumer suplus. What is the most the government would be willing to pay in order to prevent collusion? (5 pts) IS