Table 16-7 The Demand for a Product That Is Produced at Zero

question 45

Essay

Table 16-7
The demand for a product that is produced at zero marginal cost is reflected in the table.

(a) What is the profit-maximising level of production for a group of oligopolistic firms that operate as a cartel?
(b) Assume that this market is characterised by a duopoly in which collusive agreements are illegal. What market price and quantity will be associated with a profit-maximising Nash equilibrium?
(c) Assume that this market is served by three identical firms that operate as independent oligopolists (no collusive agreements). What market price and quantity will be associated with a profit-maximising Nash equilibrium? How does your answer differ from that in part b above?

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