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Zero fixed costs and constant marginal costs

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Consider the following Cournot game. The demand for a good is QD = 60 - p.

The two firms which compete in the market have zero fixed costs and constant marginal costs MC1 = 0, MC2 = 12.

  1. Solve for the Cournot equilibrium quantities of the two firms. Solve for the market price and each firm's profit.
  2. Suppose the two firms collude. Solve for the level of total output produced by the two firms. Solve for the market price and the total profit of the two firms.
  3. Firm 1 is considering buying firm 2. If the acquisition is successful, the two firms merge into one; otherwise they play the Cournot game. What is the highest price that firm 1 is willing to pay for the acquisition? What is the lowest price that firm 2 is willing to accept?

Reference no: EM132414837

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