Reference no: EM132488647
Suppose that there are two gasoline stations in a small, remote town:
Johnny FastGas, and Eddie's Gas-O-Rama. The demand for gasoline in the town is Q = 14 - P, where Q is in thousands of gallons of gas. Each has a cost function equal to C = 2 + 2q. Both Johnny and Eddie can sell as much gasoline as they need to, or they can restrict the amount of gasoline they sell by remaining open fewer hours during the day, failing to fix broken gas pumps, etc.
a) Suppose that Johnny and Eddie collude to maximize profits. What are equilibrium prices, quantities, and profits for each gas station under the cartel?
They will act as a monopolist would act. MR=MC.
b) What is the Cournot equilibrium outcome for this duopoly? What are equilibrium prices, quantities, and profits for each gas station?
c) Suppose that Eddie becomes the Stackelberg leader in the market. What are equilibrium prices, quantities, and profits for each gas station?
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