Reference no: EM133125473

1. A market has an inverse demand function p = 120 - Q and four firms, each of which has a constant marginal cost of MC = 40. If the firms form a profit-maximizing cartel and agree to operate subject to the constraint that each firm will produce the same output level, how much does each firm produce?

2. In 2013 and 2014, a federal judge ruled that Apple colluded with five major U.S. publishers to drive up the prices of e-books (which could be read on Apple's iPad). Apple collects a 30% commission on the price of a book from the publisher. Why would Apple want to help publishers raise their price? Given Apple's commission, what price would a book cartel want to set? (Hint: The marginal cost of an e-book is virtually zero.)

3. Suppose that identical duopoly firms 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. Solve for the Bertrand equilibrium.