Note : the answers should be Computerized Case Study Suppose that there are only

Question

Note : the answers should be Computerized

Case Study Suppose that there are only two firms in the petroleum market Saudi Aramco (SA) and Kuwait Petroleum Corporation (KPC). They give you some information about the petroleum market and you have to answer the questions below # Demand Equation: P = 110-Q # For each firm marginal cost MC-S20. # [Quantity of outcome (qsa), Price (psa), Profit (Tsa)], [Quantity of outcome (qKPC), Price (poc), Profit ( KPc)] In duopoly market, and with using Cournot-Nash Equilibrium and diagram calculate: Nash equilibrium quantities 1. Equilibrium price. 2. Profit to each firm. then: 1- What do you think the objectives of this cartel? 2- Calculate the following in monopoly market and compare them with previous results 1. Quantity of output ii. Price. iii. Profit to each firm.

Explanation / Answer

SA = (110-qSA-qKPC)qSA -20qSA

FOC:

SA’(qSA) = 110-2qSA - qKPC – 20 =0

qSA = (90 –qKPC)/2 -----------------------(1)

KPC = (110-qSA –qKPC)qKPC -20qKPC

KPC’(qKPC) = 110-qSA – 2qKPC -20 =0

qKPC = (90-qSA)/2 ---------------------------------(2)

Put eq 2 in 1

qSA = 45 -1/2*[45- ½*qSA]

qSA = 45/2 +1/4 *qSA

¾*qSA = 45/2

qSA =( 45/2)*(4/3)

qSA = 30

Put qSA in equation (2)

qKPC = 30.

1. pSA = pKPC = 50.

2. SA = (1500- 600) =900

KPC = (1500-600) = 900

A.)

The objective of the cartel is to charge high price to increase profit.

C = (110-Q)*Q – 20Q

FOC:

C’(Q) = 110-2Q -20 =0

Q = 45.

P =( 110-45) = 65

Profit = (65*45) – (20*45) =2025

Profit to each firm = 2025/2 = 1012.5

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