Please all solve the question • Suppose three identical firms engage in Cournot competition, with identical marginal costs ofc. Inverse market demand is given by the function P a – bQ, where Q q1 +q2 + q3.a)produce and what is their individual profit? (assume firms equally split production and profitsfrom the collusive profit maximization problem)Assume the firms collude to maximize total profit. What quantity does each firmb)What is the maximum profit achievable with this deviation from the collusive agreement?One firm considers reneging on the collusion production agreement in part (a).c)necessary to sustain cooperation if a Cournot equilibrium trigger strategy is threatened aspunishment?Assuming the oligopoly game is infinitely repeated, what discount factor 8 isd)why or why not.Does the discount factor depend on the marginal cost (c) for each firm? Explain

Cournot competition models an oligopoly where a few firms strategically choose production…

Suppose three identical firms engage in Cournot competition, with identical marginal costs of c. Inverse market demand is given by the function P = a - bQ, where Q=q1 + q2+q3. a) Assume the firms collude to maximize total profit. What quantity does each firm produce and what is their individual profit? (assume firms equally split production and profits from the collusive profit maximization problem) b) One firm considers reneging on the collusion production agreement in part (a). What is the maximum profit achievable with this deviation from the collusive agreement? c) Assuming the oligopoly game is infinitely repeated, what discount factor is necessary to sustain cooperation if a Cournot equilibrium trigger strategy is threatened as punishment? d) Does the discount factor depend on the marginal cost (c) for each firm? Explain why or why not.

Suppose three identical firms engage in Cournot competition, with identical marginal costs of c. Inverse market demand is given by the function P = a - bQ, where Q=q1 + q2+q3. a) Assume the firms collude to maximize total profit. What quantity does each firm produce and what is their individual profit? (assume firms equally split production and profits from the collusive profit maximization problem) b) One firm considers reneging on the collusion production agreement in part (a). What is the maximum profit achievable with this deviation from the collusive agreement? c) Assuming the oligopoly game is infinitely repeated, what discount factor is necessary to sustain cooperation if a Cournot equilibrium trigger strategy is threatened as punishment? d) Does the discount factor depend on the marginal cost (c) for each firm? Explain why or why not.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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