Question

I ONLY NEED PART (E) PLEASE!

On a market with monopolistic competition, a firm meets the demand Q
D
= 400 – 4P. The
firm’s marginal cost is given by MC = 40 + 2Q.
A. Which quantity should the firm produce to maximize its profit? Which is the profit
maximizing price on the market?
B. Draw a figure that shows the firm’s profit maximizing quantity and price.
C. What is the firm’s long-term profit?
D. Now instead assume the market is a duopoly, and that the total demand is given by Q
D
=
1600 – 2P. The two firms on the market, Delta and Gamme, have identical cost functions
TC
D
= TC
G
= 200 + 50Q. The firm’s respective boards have agreed to collaborate to
maximize their collective profit. What is the profit of Delta and Gamma if the firms together
agree on which quantity to produce?
E. Gamma’s board doesn’t trust Delta’s board and therefore lays out a strategy for what
would happen if Delta deviates from the firms’ mutual agreement. Since Gamma’s chief
economist recently brushed up on his game theory, he’d like to make use of it immediately.
What would the result matrix that the chief economist would produce look like, based on your
calculations from part A of this question? As your starting point, consider that the firms can
choose to produce the agreed-upon quantity from part A, and another quantity. Also provide
the combinations of strategies that provide the Nash equilibrium points.

I ONLY NEED PART (E) PLEASE on this one!

Answer 1

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