Question

In the wireless telecommunication service market, only two companies are competing, so let's call it Company 1 and Company 2, respectively. Assume that each company spends $10 to provide wireless services to individual consumers. That is, Entity 1's cost function is TC(q1) = 10q1 and Entity 2's cost function is TC(q2) = 10q2. For the convenience of analysis, assume that consumers do not distinguish the quality of the services provided by the two companies. The reverse demand function of the market is p(Q)=50-Q. Q=q1+q2 here
(a) obtain and graph the best response function of Company 1 and Company 2.
(b) seek the nash balance and obtain the profits of the individual enterprises in the balance.
(c) What is the social welfare loss due to monopoly?
(d) Suppose two enterprises form a cartel. Obtain the market output (Q=q1+q2) and market profit at this time.
(e) What is the social welfare loss at this time?

Answer 1