Suppose the market demand is Q=100-P. You are asked to find out how this market operates...

Suppose the market demand is Q=100-P. You are asked to find out how this market operates under perfect competition, monopoly and oligopoly, with the same market demand and cost structure for each firm.

Suppose the industry is perfectly competitive. The long-run cost function of each firm is c(Q)=2Q. Calculate the market price, total quantity supplied of the market, and each firm’s profit (in the long run).
Suppose there is a single firm serving the whole market, i.e. it is a monopolist. The cost function of the firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and the firm’s profit. How do they compare with a)?
Suppose the market is under duopoly. There are two identical firms playing Cournot competition, and the cost function of each firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and each firm’s profit. How do they compare with b)?
Suppose there are 3 identical firms playing Cournot competition, and their cost function of each firm is c(Q)=2Q. Calculate the total quantity supplied of the market, the market price, and each firm’s profit. How do they compare with c)?

Solutions

Expert Solution

b. as compared with a. part, the price has increased due to more monopoly power. Monopolist is able to reduce the quantity still making higer profits.

c. Due to Cournot competition (quantity competition), market quantity has increased. But due to fall in prices, the overall profit has declined as compared with part b.

d. Competition between three firms will increase the quantity and decrease the price. The overall effect is increase in profit as compared to part c.

Rahul Sunny answered 1 year ago

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