Question

In: Economics

Market demand is given by Q = 53 - P. Let AC = MC = 5....

Market demand is given by Q = 53 - P. Let AC = MC = 5.

There are two firms; A, B. So q^A + q^B = Q.

a. Find the reaction functions for firm A and firm B.

b. Find the Cournot equilibrium firm output, market output, and price.

c. Graph the demand curve and the MC curve.

d. Find the monopoly equilibrium output and price (you already did this in the Monopoly Assignment).

e. Find the competitive market equilibrium output and price.

f. Show the competitive equilibrium, the monopoly equilibrium, and the oligopoly market equilibrium on your graph. Compare the deadweight loss for monopoly and oligopoly.

Solutions

Expert Solution

both the firms have same cost structure AC=MC=5

Part A)

maximizing profit by equating first derivative with respect to output to 0

Part B)

substituting the reaction function for firm A in reaction function for firm B

Part c)

Part D)

Monopoly equilibrium is at point where marginal revenue equals marginal cost

Part E)

Competitive market equilibrium is at point where price equals marginal cost

Part F)

In case of competitive equilibrium, total economic surplus is maximum and there is no deadweight loss

Rahul Sunny answered 1 week ago

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