Question
In: Economics
The local steel market has an inverse demand function for a metric ton of steel: P...
The local steel market has an inverse demand function for a metric ton of steel:
P = 1450 – Q
Donald and Justin are the only two steel miners in the market who sell metric tons of steel. They both have a constant marginal and average cost of $100 per metric ton. Both farmers simultaneously determine the quantity of steel they are going to bring to the market. They do not confer beforehand, and the price is determined by the market after they arrive at the steel exchange market.
a. What are Donald and Justin’s best response functions?
b. What are the Cournot equilibrium quantities and the market price?
c. What would be the price that Donald and Justin would charge if they choose to collude?
d. Will the collusion agreement last? Why or why not? (be sure to show your reasoning in your analysis)
e. Explain in detail how a monopolistically competitive firm can set its price greater than the marginal cost.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
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Refer to a duopoly market in which the inverse demand
function is given by P = 96 − Q. Firm 1's cost function is
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0.5q22 (such that each firm has MC = 6 +
q).
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