Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2Q₁ − 2Q₂.Each firm has a marginal cost of $50.Based on this information,we can conclude that aggregate quantity in the different equilibrium oligopoly models will follow which of the following orderings? A) Q^Collusion

Question

Consider a market consisting of two firms where the inverse demand curve is given by P = 500 − 2Q₁ − 2Q₂.Each firm has a marginal cost of $50.Based on this information,we can conclude that aggregate quantity in the different equilibrium oligopoly models will follow which of the following orderings? A) Q^Collusion < Q^Stackelberg < Q^Cournot < Q^Bertrand B) Q^Collusion < Q^Cournot < Q^Stackelberg < Q^Bertrand C) Q^Bertrand < Q^Collusion < Q^Cournot < Q^Stackelberg D) Q^Bertrand < Q^Stackelberg < Q^Cournot < Q^Collusion

Quizplus · Accepted Answer

In a Bertrand oligopoly, both firms will compete on price, driving the price down to marginal cost and resulting in a quantity equal to the quantity at perfect competition. In a Cournot oligopoly, each firm will choose its quantity, taking into account the reaction of the other firm, resulting in a higher price and lower quantity than in Bertrand. In a Stackelberg oligopoly, one firm will act as the leader, setting its quantity first and the other firm will follow, resulting in a higher price than in Cournot and lower quantity than in Bertrand. In collusion, the firms will act as if they are a single monopoly, setting the price and quantity to maximize profits. 
Therefore, the aggregate quantity will follow the ordering: Collusion < Cournot < Stackelberg < Bertrand.

Consider a Market Consisting of Two Firms Where the Inverse