- Handwritting Step By Step Please Only Question Ii 1 (65.68 KiB) Viewed 13 times
HANDWRITTING STEP-BY-STEP PLEASE. ONLY QUESTION II.
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HANDWRITTING STEP-BY-STEP PLEASE. ONLY QUESTION II.
HANDWRITTING STEP-BY-STEP PLEASE. ONLY QUESTION II.
a. There are 5 firms in an industry that compete by setting quantities simultaneously. Every firm has an identical constant marginal cost of $10 and no fixed costs. Market demand is given by P = 250 - 4(9₁ +92 + ... 95). i. Suppose Firms 1 and 2 are considering merging into a single firm. So, post-merger, Firms 1 and 2 would be replaced by a single firm that has a constant marginal cost of $10 and no fixed costs. You have been hired by Firms 1 and 2 as a consultant. Use the Cournot model to give advice on the profitability of this merger. ii. Ignore the information in part (i). Suppose, instead, that the five firms are planning to form a cartel. A government policy maker becomes aware of this plan and decides to announce that any cartel discovered in the market will be fined $F. What is the lowest F that would deter the firms from cartelizing the market. Assume that if a cartel is formed, it will certainly be discovered by the government, and that the resulting fine is shared equally among cartel members. Show your work.
a. There are 5 firms in an industry that compete by setting quantities simultaneously. Every firm has an identical constant marginal cost of $10 and no fixed costs. Market demand is given by P = 250 - 4(9₁ +92 + ... 95). i. Suppose Firms 1 and 2 are considering merging into a single firm. So, post-merger, Firms 1 and 2 would be replaced by a single firm that has a constant marginal cost of $10 and no fixed costs. You have been hired by Firms 1 and 2 as a consultant. Use the Cournot model to give advice on the profitability of this merger. ii. Ignore the information in part (i). Suppose, instead, that the five firms are planning to form a cartel. A government policy maker becomes aware of this plan and decides to announce that any cartel discovered in the market will be fined $F. What is the lowest F that would deter the firms from cartelizing the market. Assume that if a cartel is formed, it will certainly be discovered by the government, and that the resulting fine is shared equally among cartel members. Show your work.