In: Economics
Two companies (A and B) are duopolists that produce identical products. Demand for the products is given by the following demand function:
P = 10,000 - QA - QB
where QA and QB are the quantities sold by the respective firms and P is the selling price.
Total cost functions for the two companies are:
TCA = 500,000 + 200QA + .5QA2
TCB = 200,000 + 400QB + QB2
a) Assume that the two firms act independently as in the Cournot model (that is, each firm assumes that the other firm's output will not change). Determine the long-run equilibrium output and selling price for each firm.
Your answer: QA= ; QB = ; P =
b) Assume that the firms form a cartel to maximize total industry profits (sum of Firm A and Firm B profits). Determine the optimum output and selling price for each firm.
Your answer: QA= ; QB = ; P =
The objective of the following analysis is to provide for equilibrium quantity and price under the condition of Cournot and cartel set up.