00:01
So here we are talking about the effects of market structure.
00:03
And so one, if we have sort of a, i'll call it collusion outcome.
00:09
What is the goal of colluding pair of firms? well, the goal is to max profit, right? but max profit combined.
00:21
So if marginal cost is equal to zero, right? max profit is just equal to max revenue because there are no costs for production.
00:31
There are no costs for production.
00:33
Profit is just bringing in as much money as you can.
00:35
So what i want to look at is in this table between price and quantity, i want to think about the revenue.
00:42
So we have eight and 300.
00:45
That gives me 2400.
00:48
Let's start cutting the price to see if it pays off.
00:52
Cutting to seven pays off.
00:54
Going to six and 500 gives me 3000.
00:59
Five and six is equal to 3000.
01:03
Four and 700 is equal to 2800.
01:07
And it's going to go down from there.
01:09
So if colluding, both of these generate the same thing.
01:15
Now, i would say everything else equal.
01:17
The marginal cost is probably not exactly zero.
01:20
But if it is zero, i think you could expect a price of six and a quantity of 500.
01:27
But you could equally expect a price of five and a quantity of 600 because they both give you the same outcome, right? they both give an equal amount of profit.
01:38
Now, the competition is going to be a little bit different in competition.
01:45
Right.
01:45
Let's think about this in that nash equilibrium sense.
01:49
Suppose your firm, your competitor charges, say, let's say they start off at five dollars...