Author Question: Consider a market with (inverse) demand p = 100 - 2Q. There are two firms in the market with ... (Read 30 times)

Frost2351 · **on:** Jul 1, 2018

Consider a market with (inverse) demand p = 100 - 2Q. There are two firms in the market with constant marginal and average costs of 10.

a. Determine the Cournot equilibrium quantities and price
b. What would be the collusive (joint-profit maximizing) price and quantity?
c. Derive the deadweight loss from (i) Cournot Dupoly, (ii) Collusion, and (iii) Perfect competition in this market with the two firms.

Question 2

If a product which costs 8 is sold at 10, the mark-up is

A) 2.
B) 25.
C) 20.
D) None of the above

katheyjon · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

a. q1 = q2 = 15
p = 100 - 2(30 ) = 40
b. 100 - 4Q = 10 Q = 22.5, q = 11.25
p = 55
c. DWL from P.C. = 0
DWL from monopoly = .5(45 - 22.5 )(55 10 ) = 506.25
DWL from duopoly = .5(45 30 )(40 10 ) = 225

Answer to Question 2

B