Adi and Jill are the only doctors in a small Pennsylvania town who offer LASIK eye surgery. The table provides the demand schedule for eye surgeries in this town. Each doctor faces a constant marginal cost of $50 to perform the surgery; there are no fixed costs.
Price (Dollars) Quantity
500 3
450 4
400 5
350 6
300 7
250 8
200 9
150 10
100 11
50 12
1. If Adi and Jill collude to achieve the monopoly outcome, how many surgeries should each doctor perform? Assume they split the output evenly.
2. If Adi believes that Jill will abide by their collusive agreement and perform only three surgeries, find a number of surgeries that Adi could perform that would maximize his profits.
3. Jill does not trust Adi to abide by the agreement and instead believes that he will perform four surgeries. How many surgeries should Jill provide to maximize her own profits?
4. The strategy set in which Adi performs _____ surgeries and Jill performs ______ surgeries is a Nash equilibrium.