1. Assume that two companies (C and D) are duopolists that produce identical pro

Question

1. Assume that two companies (C and D) are duopolists that produce identical products. Demand for the products is given by the following linear demand function: P = 600 Qc- Qd Where Qc and Qd are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TCc = 25,000 + 100Qc TCd= 20,000 + 125Qd. Assume that the firms act independently as in the Cournot model (i.e., each firm assumes that the other firm s output will not change). A. Determine the long-run equilibrium output and selling price for each firm.

Explanation / Answer

Two cost functions are: TCc = 25,000 + 100Qc TCd= 20,000 + 125Qd Let us solve it now, 25000 + 100 Q = 20000 + 125 Q 5000 = 25 Q Q = 200 The equilibrium output for both of them will be : 200 units in the long run. While the price is : 600 - 200 - 200 = $ 200

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