An industry consists of two ?rms. The demand function for the product of ?rm i is qi =24−5pi +2pj. The marginal cost of production for each ?rm is zero.
(a) Find the price best-response function for ?rm i.
(b) Assume the ?rms compete over prices once; ?nd the Nash equilibrium in prices.
(c) Find the collusive prices.
(d) Draw a diagram that illustrates parts (a) through (c).
(e) What are collusive pro?ts? Bertrand pro?ts?
(f) What is the optimal defection from the collusive agreement?