In: Economics
Consider a 4-Firm Cournot market that is described by: p(Q)=100 - 0.2Q. Each firm faces no fixed costs and a constant marginal cost of $10.
a) Describe the market equilibrium under the 4‐firm Cournot structure. That is:
i) How much output will be made in total? (Hint: the formula is given on page 190.)
ii) How much output will each firm make?
iii) What price will be charged? (Hint: the formula is given on page 190.)
b) How much dead‐weight loss is experienced in the market compared to a perfectly competitive market?
Hint #1:Solve for the perfectly competitive equilibrium.
Hint #2:If you graph the market solution under perfect competition and under a 4‐firm. (Cournot market, you should be able to identify the area associated with dead‐ weight loss. Keep in mind that the marginal cost curve is horizontal at a cost of $10 per unit of output made)