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Suppose we have a duopoly in the production of mineral spring water. Each firm has the same cost structure where MC(Q) = 10. The market demand for mineral spring water is given by P = 70 - Q/50
Each firm, wishing to maximize profits, assumes that the other firm will not change its current level of production. What will be the final level of production for the market (after a Cournot equilibrium is reached)? How much is produced by each firm? How much profit is earned by each firm?

Suppose the two firms in the question above collude to maximize joint profits. What would the equilibrium price and quantity be? How much profit is made in the industry and by each firm?

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Yusra Anees
Yusra AneesLv10
28 Sep 2019

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Related questions

Suppose mountain spring water can be produced at no cost and the inverse demand for mountain spring water is P = 1200 - 0.2Q. Answer the following questions.


a. Suppose the market of mountain spring water is supplied by a monopoly firm that cannot price discriminate. Find the monopoly firm's profit-maximizing price and quantity of production. (10 pts.) [Hint: MR = P + (P/Q)*Q]


b. Suppose the market of mountain spring water is supplied by two firms (Firm A and firm B) that behave like a Cournot duopoly. Find the Nash Equilibrium price and quantity of production for each firm. (10 pts.) [Hint: Q = QA + QB; MRA = P + ((P/QA)*QA and MRB = P + ((P/QB)*QB]


c. Suppose the market of mountain spring water is supplied by two firms (firm A and firm B) that behave like a Stackelberg duopoly where firm A is the leader and firm B is the follower. Find the Nash Equilibrium price and quantity of production for each firm. (10 pts.) [Hint: Q = QA + QB; MRA = P + ((P/QA)*QA and MRB = P + ((P/QB)*QB]

Suppose that market demand for golf balls is described by Q = 90 -  3P, where Q is measured in kilos of balls. There are two firms that supply the market. Each firm has a constant unit cost of 10.

1. Suppose the firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what are the firms' profits?

2. Suppose the firms compete in price. How much does each firm sell in a Bertrand equilibrium? What is the market price and what are the firms' profits?

1. Suppose that two identical firms produce widgets and they are the only firms in the market. The cost functions of the two firms are given by C1(Q1) = 60Q1 and C2(Q2) = 60Q2. The demand function of the market is given by the function P = 300 - Q where Q=Q1+Q2.

a. Find the Cournot equilibrium output levels and profit for each firm.

b. Suppose the two firms form a Cartel and to maximize joint profit. Calculate how many widgets each firm will produce and their output levels.

c. Suppose firm 1 is the only firm in the market. Determine the output and price that firm 1 will produce and charge. Also, determine the profit level.

d. Suppose firm 2 takes its output decision after firm1 has announced its output decision. Calculate the output levels and profit levels of the two firms. Comparing the output and profit of part (a), which firm is better off and which firm is worse off ? Explain your answer.

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