QUIZ 3 ANSWER KEY
Oligopoly and Collusion
Version A
I. Multiple choice [3 pt each: 30 pts total]
(1)b. (2)e. (3)d. (4)d. (5)a. (6)d. (7)c. (8)d. (9)b. (10)c.
II. Problems
(1) [Game theory: 15 pts]
- Firm B plays "low price";
- Firm A plays "low price";
- Yes, there is a Nash equilibrium.
Both firms play "low price."
This is the only Nash equilibrium.
(2) [Collusion: 30 pts]
- $7;
- 5 million;
- $10 million;
- $3;
- 9 million;
- $0 million.
(3) [Cournot duopoly: 25 pts]
- P = (12 - 0.01 qA) - 0.01 qB;
- MRB= (12 - 0.01 qA) - 0.02 qB;
- qB = 450 - 0.5 qA;
- qA = qB = 300;
- P = $6.
Version B
I. Multiple choice [3 pt each: 30 pts total]
(1)c. (2)b. (3)c. (4)b. (5)b. (6)b. (7)b. (8)a. (9)a. (10)a.
II. Problems
(1) [Game theory: 15 pts]
- Chain B plays "downtown";
- Chain A plays "uptown";
- Yes, there is a Nash equilibrium.
Chain A plays "uptown," Chain B plays "downtown."
There is another Nash equilibrium:
Chain A plays "downtown," Chain B plays "uptown."
(2) [Collusion: 30 pts]
- $8;
- 4 million;
- $4 million;
- $6;
- 6 million;
- $0 million.
(3) [Cournot duopoly: 25 pts]
- P = (9 - 0.05 qA) - 0.05 qB;
- MRB= (9 - 0.05 qA) - 0.10 qB;
- qB = 60 - 0.5 qA;
- qA = qB = 40;
- P = $5.
[end of answer key]