MARKET STRUCTURE economic
1. 5 Pts. Explain why cartels are potentially profitable but unstable and difficult to sustain.
2. 5 Pts. Describe how managers can engage in and sustain tacit collusion to boost their prices and economic profit.
3. 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?
4. 10. 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.
5. 15. 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?