Econ ON OLIGOPOLY & SOME GAME THEORY IDEAS WITH OLIGOPOLY Assignment

Econ ON OLIGOPOLY & SOME GAME THEORY IDEAS WITH OLIGOPOLY - Assignment Example In the contestable market the evaluation of dealings among current firms and prospective entrants is investigated more critically. The market incumbents maintain an oligopoly through the determination of price levels in the market in their favor. Again the oligopoly is maintained by the government favor and creates a barrier for other firms from venturing in the market. 2) Suppose there are two firms operating in an oligopoly (termed a â€Å"duopoly†), where the firm 1 cost function is given by C1 = 18Q1, for C1 = total cost, and Q1 = firm 1 output. The cost function for firm 2 is given by C2 = 21Q2, and C2 = total cost of firm 2, and Q2 = output of firm 2. The inverse demand for the product, Q, being sold by the oligopolist firms is given by P = 127 – 3Q, where Q = Q1+ Q2, and Q1 and Q2 are the same product (vats of toxic solution for breaking down chemical components to be used in downstream plastic manufacture). Taking into the consideration the Cournot model in regard to the duopoly that is two firms where both firms concurrently decide a quantity to produce. Designating the quantity q1 as the amount produced by firm 1 and q2 as the corresponding amount produced by firm 2. Therefore the total quantity The firm production choices are strategic substitutes. That is, an increase in the amount produced by firm1 (holding fixed the underlying amount produced by the corresponding firm 2) will considerably lower the market price and thus resulting in lesser profits for firm 2. Thus, every firm ought to take into consideration the prevailing the production decisions of the other supplementary firm in the process of undertaking its individual production decision Firm 1 possess a marginal cost of production equivalent to c1 accompanied by firm 2 which possess a marginal cost of production equivalent to c2. The corresponding Nash equilibrium is computed through the employment tow