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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 2 years ago
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