Acme Steel supplies metal to two markets: 1 and 2. The market demand is the same...

Acme Steel supplies metal to two markets: 1 and 2. The market demand is the same in both markets. Specifically, the demand function in market 1 is p₁ = 10 – q₁, and in market 2 the demand function is p₂ = 10 – q₂ . In market 1, Acme Steel (hereafter called A) is a monopolist, whereas in market 2 there is another firm (call it B). Thus, in market 2, p₂ = 10 – q_2A – q_2B , where q_2A + q_2B = q₂ ; q_2A and q_2B are quantities supplied in market 2 by A and B respectively. Assume each firm's marginal cost of production is 0.5. There is no fixed cost.

If the two firms play a Cournot game in market 2, how much will A supply in each market and how much will B supply to market 2? What is the price in each market?

Expert Solution

Rahul Sunny answered 8 months ago

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