Consider a 4-Firm Cournot market that is described by: p(Q)=100 - 0.2Q. Each firm faces no...

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)

Expert Solution

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Rahul Sunny answered 8 months ago

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