The market demand for economics books is given by P = 12 − Q (a) Initially...

The market demand for economics books is given by P = 12 − Q

(a) Initially there is only one firm (a monopolist) operating in this market. The total cost of producing books for the firm is T C = 2Q. How many books will he/she sell in this market? What will be market price?

(b) Now, suppose a second firm enters the market. The two firms are now Cournot duopolists and they will produce quantities Q1 and Q2 respectively, where Q1 +Q2 = Q. Their total cost functions are T C1 = 2Q1 and T C2 = 2Q2. What are the firms’ reaction functions? How much will each firm produce? What will be the total quantity sold in the market and at what price?

(c) Is the total quantity sold in the market different in part (a) and (b)? Give a short reason for your answer

Expert Solution

Rahul Sunny answered 2 years ago

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