ECON 2350 Lecture 11: Econ 2350 Lecture 11
7 Jan 2018
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Topic: collusion & punishment strategies u so a profit-seeking cartel in which firms cooperatively set their output levels is fundamentally unstable. u e. g. , opec"s broken agreements. Then there is an opportunity to punish a cheater u to determine if such a cartel can be stable we need to know 3 things: (iii) what is the profit the cheat earns in each period after it first cheats? u suppose two firms face an inverse market demand of p(yt) = 24 yt and have total costs of c1(y1) = y2. 1 and c2(y2) = y2 u (i) what is each firm"s per period profit in the cartel? u p(yt) = 24 yt , c1(y1) = y2. 1 , c2(y2) = y2 u if the firms collude then their joint profit function is. M(y1,y2) = (24 y1 y2)(y1 + y2) y2. 1 y2 u what values of y1 and y2 maximize the cartel"s profit? u m(y1,y2) = (24 y1 y2)(y1 + y2) y2.
