Suppose that two firms form an oligopoly in a market with the demand function P =...

Suppose that two firms form an oligopoly in a market with the demand function P = 200 − 2Q, where the market output (Q) is the sum of the outputs of the two firms: Q = q₁ + q₂. Firm 1 has total fixed cost of TFC1 = 50 and total variable cost of TVC1 = 20q₁. Similarly, firm 1 has total fixed cost of TFC2 = 50 and total variable cost of TVC₂ = 20q₂. Assume that the features of the Cournot duopoly model (simultaneous move) apply.

Answer the following questions, and write your answers in the Answer Sheet.

What is the profit function for each firm (Π1 and Π2, each should be a function of q1 and/or q2)?
What is the profit-maximizing output of each firm (q1 and q2)?
What is the resulting market output (Q)?
What is the price (P) associated with that output?
What is the profit of each firm (Π1 and Π2), based on their profit-maximizing choices?
Note: the profit functions should be equations, but the other answers should be numbers.

Expert Solution

Rahul Sunny answered 6 months ago

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