Regulation and Antitrust Policy (Econ 180)
Drake University, Spring 2007
William M. Boal

www.drake.edu/cbpa/econ/boal/180

william.boal@drake.edu

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]

  1. Firm B plays "low price";
  2. Firm A plays "low price";
  3. Yes, there is a Nash equilibrium.
    Both firms play "low price."
    This is the only Nash equilibrium.

(2) [Collusion: 30 pts]

  1. $7;
  2. 5 million;
  3. $10 million;
  4. $3;
  5. 9 million;
  6. $0 million.

(3) [Cournot duopoly: 25 pts]

  1. P = (12 - 0.01 qA) - 0.01 qB;
  2. MRB= (12 - 0.01 qA) - 0.02 qB;
  3. qB = 450 - 0.5 qA;
  4. qA = qB = 300;
  5. 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]

  1. Chain B plays "downtown";
  2. Chain A plays "uptown";
  3. 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]

  1. $8;
  2. 4 million;
  3. $4 million;
  4. $6;
  5. 6 million;
  6. $0 million.

(3) [Cournot duopoly: 25 pts]

  1. P = (9 - 0.05 qA) - 0.05 qB;
  2. MRB= (9 - 0.05 qA) - 0.10 qB;
  3. qB = 60 - 0.5 qA;
  4. qA = qB = 40;
  5. P = $5.

[end of answer key]