Two companies (A and B) are duopolists that produce identical products. Demand for the products is...

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 - Q_A - Q_B

where Q_A and Q_B are the quantities sold by the respective firms and P is the selling price.

Total cost functions for the two companies are:

          TC_A = 500,000 + 200Q_A + .5Q_A²

         TC_B = 200,000 + 400Q_B + Q_B²

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: Q_A=            ; Q_{B =
;} 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: Q_A= ; Q_{B =    ;} P =

Solutions

Expert Solution

The objective of the following analysis is to provide for equilibrium quantity and price under the condition of Cournot and cartel set up.

Rahul Sunny answered 1 year ago

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