Gce Model Questions Vol1 2018 Economics Question 6

The market for a homogeneous good is described by the inverse demand equation P = 200 – 0.5Q, where P is the price (₦ per unit) and Q is the total market output (units). Three firms – A, B and C – operate in this market. Each firm has the same total cost function TC = 20,000 + 30Qᵢ, where Qᵢ is the output of firm i. Answer the following: a) Identify the most appropriate market structure for this industry and justify your choice with two characteristic features. b) Assuming the firms compete à la Cournot (each chooses its output taking the others’ outputs as given), calculate the Cournot‑Nash equilibrium output of each firm and the resulting market price. Show the key steps of your derivation. c) If the three firms merged to become a single monopoly, determine the monopoly output and price. d) Briefly discuss two possible effects of collusion (the three firms coordinating their output) on consumer welfare and on the firms’ profits.