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: Consider a market with two firms, A and B. The market dema

Paper help Economics : Consider a market with two firms, A and B. The market dema

Economics

: Consider a market with two firms, A and B. The market dema

: Consider a market with two firms, A and B. The market demand is P=100-Q where Q=Q_{A}+Q_{B… Show more Question: Consider a market with two firms, A and B. The market demand is P=100-Q where Q=Q_{A}+Q_{B}, where Q_{A} is the quantity firm A sells and Q_{B} is the quantity firm B sells. Assume both firms have the same total cost function C(q)=4q. (a) If the two firms cooperate to maximize joint profit, how many units of the output in total will the firms produce, and at what price will the output be sold? (b) As a cooperative agreement, each firm is required to produce on half of the total output in part (a). Would a firm have any incentive to produce a different quantity, given that the other firm complies with the agreement? If so, what would the quantity be? (c) Due to the lack of an enforcing mechanism, each firm is free to choose between complying or not complying with the agreement. Assuming that the two firms stay in the market forever, suggest a strategy for the firms to support the cooperative agreement in part (b). Explain how it works. Please be really specific about the process to get to the solution! Thank you so much! • Show less

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