Question

The information in the table below shows the total market demand for Good X. Assume the marginal cost of providing Good X is zero.

Quantity	Price
4	$ 40
5	$ 35
6	$ 30
7	$ 25
8	$ 20
9	$ 15
10	$ 10

Refer to the table above. What is the Nash Equilibrium market quantity produced in a duopoly market?

8

5

7

6

4

Answer 1

Consider the following table here given the market demand curve if there are only one firm then the optimum output production is given by, “q1 = 6” and the corresponding price is “P=30”, => the corresponding TR is “30*6 = 180”.

Now, when 2^nd firm will enter into the market will observe that the 1^st firm is producing “6”, => the rest of the demand is remain to supply, => under this situation the demand of the firm 2 is given below.

So, here the “firm 2” will produce “q2=3” and will charge “P=15”, => the market output is “9” and “P=15”. So, under this situation the revenue earn by “firm 1” will reduce to “6*15=90”. So, here to increase revenue “firm 1” will reduce their output to “4”, => the updated “Q” is “4+3” and the “P” is “25”. So, revenue earn by “firm 1” and “firm 2” is given by, “4*25 = 100” and “3*25 = 75” respectively.

So, if the “firm 1” will produce “4”, => the “firm 2” can supply for rest of demand curve, => the demand curve of “firm 2” is given below.

So, under this situation the optimum “q2” is “4” and the total output is “4+4=8” and the corresponding “P” is “20”. So, here no firm have any incentive to reduce their production, => the equilibrium “Q” is “4+4=8” and the market price is “20”.

So, here the correct option is "A".