Economics · Oligopoly and Collusion
Two Cournot firms collude to maximise joint profit. With inverse demand P = a - bQ and identical MC = c, compare the collusive (cartel) outcome to the non-cooperative Cournot-Nash equilibrium. Which of the following CORRECTLY describes the collusive outcome relative to Cournot? I. Total market output falls from 2(a - c)3b to a - c2b. II. Market price rises from a + 2c3 to a + c2. III. Each firm's individual output falls from a - c3b to a - c4b. IV. Combined profit rises, so each firm has an incentive to cheat by expanding output. V. The collusive equilibrium is a Nash equilibrium of the one-shot game. Choose the correct combination:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1I, II, III and IV only✓
- 2I and II only
- 3I, III and V only
- 4II, IV and V only
Correct answer
I, II, III and IV only
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