Stats Solutions

Solution: Consider an oligopolistic market with two firms who produce an identical produce. One of the firms has a (constant) marginal cost of production

Question: Consider an oligopolistic market with two firms who produce an identical produce. One of the firms has a (constant) marginal cost of production of $10 unit while the other has a (constant) marginal cost of production of $20.

The demand curve for the market is given by

\[P=100-Q\]

Where Q is total output.

  1. If this market is run as a Bertrand equilibrium, what price will each firm choose?
  2. If this market is run as a Cartel, what price will be chosen? How will production be divided between the two firms?
  3. Is this cartel likely to be stable in the absence of a binding agreement?

Repeat (a), (b), and (c) for the following demand curve?

\[P=30-Q\]

Explain any differences in your original answers.

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