Question 1) Oligopoly with identical goods

There are three energy providers in Saskatchewan: Sask Power (SP), SaskEnergy (SE), and Saskatoon Light & Power (SL). Their services are identical to consumers and all have the same total cost: TC=20q

The demand for energy in Saskatchewan is given by P=140-2Q where Q=q_sp+q_se +q_sl

Cartel: Suppose all energy providers agree to collude, evenly splitting the output a monopolist would make and charging the monopoly price.

a)Derive the equation for the monopolist's marginal revenue curve.

b)Determine the profit-maximizing collective output for the cartel.

c)Determine the price energy providers will be able to charge.

d)Determine profits for each firm individually, as well as for the cartel as a whole.

Suppose that Saskatoon Light & Power cheats on the cartel agreement by supplying 10MWh extra electricity.

e)What does the extra production do to the price in the marketplace?

f)Calculate Saskatoon Light & Power profit. How much will it gain by cheating?

g)Calculate Sask Power and Sask Energy's profit. How much did Saskatoon Light & Power's cheating cost the other two firms?

h)How much potential profit does the group lose as a result of Saskatoon Light & Power's cheating?

Suppose that SaskEnergy also cheats and beginssupply10 MWh extra electricity

i)How does the extra production affect the price in the marketplace?

j)Calculate Sask Energy's profit. How much will it gain by cheating?

k)Calculate Saskatoon Light & Power's profit. How much did Sask Energy's cheating cost it?

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