(Assume firms compete over quantity) Two identical firms are serving a market in
ID: 1206854 • Letter: #
Question
(Assume firms compete over quantity) Two identical firms are serving a market in which the inverse demand function is given by P = 4002Q (P = 4002(q1 +q2)). The marginal costs of each firm are $40 per unit.
A) show and explain, how the Cournot quantities will change when cost of firm 1, c1 falls to 30? You may skip the calculations for this part, but you must provide the basic intuition.
(e) What is the Bertrand Nash equilibrium outcome? What is the price? What are each firms equilibrium quantities and total equilibrium quantities? What are the total profit and profit per firm?
Explanation / Answer
A.Firm 1 will be producing more output than firm 2 and also will be earning higher profits as compared to firm 2 due to decline in the cost.
e. Bertrand Nash equilibrium outcome occurs at the level of the prices where prices are equal to Marginal cost of the firm. So, prices = $ 40.
So, P = 400 - 2 Q
40 = 400 - 2Q
2 Q = 360
Q = 180 units
q 1 = q 2 = 90 units
Since price is equal to Marginal Cost so profits are zero.
40 = 4002 Q
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.