20) The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is...

20) The Temecula wine market is comprised of two (duopolist) wineries. Market demand for wine is P = 2500 – 2Q, which is produced at marginal cost MC = 100 for each firm. Market output Q = q_A + q_B (where A and B denote output of the two wineries.)

The two wineries act as Cournot duopolists. Write out each firm’s best (reaction) response function and find the market price and output for each winery.
Draw the best response functions and explain how the firms arrive at the equilibrium.
Compare the price and output in part (a) to if the two wineries collude as a single-price non-discriminating monopoly.
What would be the price and output in the market if both firms break the collusion agreement in part c and act as perfect competitors?

Expert Solution

Rahul Sunny answered 2 years ago

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