There are two producers of ice cream in Princeton, Ben and
Jerry. The demand function for ice cream in this market is P = 10 − Q.
The marginal cost is constant, equal to ATC and can be expressed as
M C = 2.
(a) Suppose Ben and Jerry work together to set a prot maximizing
quantity and price like a single monopolist. And, they agree to split
the resulting prot equally. What is the prot of each Ben and of
Jerry if they both adhere to the plan?
(b) If Ben decides to cheat, and sets the price to $4. What are Ben's
prots? What are Jerry's prots?
(c) If both Ben and Jerry set the price equal to $4, and split the prot
equally. What is the prot for Ben and the prot for Jerry?
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(d) Now, Ben and Jerry have two options: to charge the joint monopoly
price as found in part (a), or to set their price equal to $4. Fill in a
payo matrix that represents these choices (use a template provided
below).
Ben
Monopoly P=$4
Jerry Monopoly
P=$4
(e) What is the dominant strategy for Ben?
(f) What is the dominant strategy for Jerry?
(g) What is the outcome of this game?
(h) Explain the intuition for your answer in part (g