Questions 1 through 4 refer to a duopoly market in which the inverse demand function is...

Questions 1 through 4 refer to a duopoly market in which the inverse demand function is given by P = 96 − Q. Firm 1's cost function is c(q₁) = 6q₁ (such that MC₁ = 6). Firm 2's cost function is c(q₂) = 12q₂ (such that MC₂ = 12).

Q1.In a Bertrand equilibrium of this market:

a.Firm 1 serves the entire market at a price of 6.

b.Each firm serves half the market at a price of 6

c.Each firm serves half the market at a price of 12.

d.Firm 1 serves the entire market at a price slightly below 12.

e.None of the other answers is correct.

Q2.The market price and quantity when firm 1 acts as a single-price monopolist will be:

a.P = 54 and Q = 42

b.None of the other answers is correct.

c.P = 51 and Q = 45

d.P = 57 and Q = 39

e.P = 48 and Q = 48

Q3.The Cournot best-response function for firm 2 will be:

a.q₂ = 42 − 0.5q₁

b.None of the other answers is correct.

c.q₂ = 45 − 0.5q₁

d.q₁ = 84 − 2q₂

e.q₂ = 0

Q4.The outputs of the two firms in Cournot-Nash equilibrium will be:

a.q₁ = 26 and q₂ = 32.

b.q₁ = 32 and q₂ = 26.

c.q₁ = 28 and q₂ = 28.

d.q₁ = 30 and q₂ = 30.

e.None of the other answers is correct.

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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