Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2Q₁ − 2Q₂.Each firm has a marginal cost of $50.Based on this information,we can conclude that equilibrium price in the different oligopoly models will follow which of the following orderings? A) P^Bertrand

Question

Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2Q₁ − 2Q₂.Each firm has a marginal cost of $50.Based on this information,we can conclude that equilibrium price in the different oligopoly models will follow which of the following orderings? A) P^Bertrand < P^Stackelberg < P^Cournot < P^Collusion B) P^Stackelberg < P^Collusion < P^Cournot < P^Bertrand C) P^Collusion < P^Cournot < P^Stackelberg < P^Bertrand D) P^Bertrand < P^Cournot < P^Stackelberg < P^Collusion

Quizplus · Accepted Answer

In oligopoly models, the equilibrium price under collusion is typically the highest because firms act as a monopoly, maximizing joint profits. The Cournot model, where firms choose quantities independently, results in a lower price than collusion due to competition. The Stackelberg model, with a leader and a follower, leads to even more competitive outcomes and thus lower prices. The Bertrand model, where firms compete by setting prices, often results in the lowest prices close to marginal cost, assuming products are perfect substitutes. Therefore, the correct ordering from lowest to highest price is Bertrand, Stackelberg, Cournot, and Collusion.

Consider a Market Consisting of Two Firms Where the Inverse