The latest micro-LED televisions

The inverse demand function in the market for the latest micro-LED televisions is ? = 12,000 – ?
In the current period, only one Firm W has developed a market-ready product. The cost function for Firm W is ?(?) = 3,000?. 


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1) In the current period, Firm W is the only supplier for micro-LED televisions. 

a) Calculate the profit-maximizing quantity for Firm W

b) What price should Firm W set?

c) What is the equilibrium profit for Firm W? 


The market analysis team of Firm W reports that several firms plan to develop a micro-LED TV on their own. 

Despite the efforts taken by Firm W, a second company, Firm E, has managed to 
copy the technology from Firm W and has entered the micro-LED market. Firm E has also reached the same cost level as Firm W.

2) The two firms now compete for customers. Calculate 

a) the equilibrium quantities offered by Firm W (?W) and Firm E (?E)

b) the equilibrium price

c) the equilibrium profits for Firm W (?W) and Firm E(?E). 


3) Calculate the consumer surplus and the welfare loss (deadweight loss) for both the 
monopoly case and the duopoly case. Assume that ? = ?C = 3,000 in perfect competition. 

Comparing the two scenarios, calculate the change

a) in consumer surplus and

b) in welfare loss. 


The two firms W and E realize that they can achieve higher profits by forming a cartel. They agree to each produce half of the monopoly output. However, both firms may have an incentive to cheat on the cartel agreement.

4) If E upholds the cartel agreement, but W reneges on the agreed upon quantity, calculate the 

a) new equilibrium quantity for W, 

b) the resulting market price

c) and the profits for W and E. 


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