Suppose we have a duopoly in the production of mineral spring water. Each firm h
ID: 1187746 • Letter: S
Question
Suppose we have a duopoly in the production of mineral spring
water. Each firm has the same cost structure where MC(Q) = 10. The
market demand for mineral spring water is given by: P= 70 -
Q/50
a. Each firm, wishing to maximize profits, assumes that the
other firm will not change his current level of production. What
will be the final level of production for the market (after a
Cournot equilibrium is reached)? How much is produced by each firm?
How much profit is earned by each firm?
b.If we had efficiency in the duopoly, what would
the market quantity and price be? How does this compare to your
answer?
If you can please explain each step as best as possible I would
really appreciate it. One of the answers I got was Q=318.5 and
P=63.63 but please review that too. Also please ignore all "Â" symbols. I dont know how to take them off. Thank you
Explanation / Answer
Q=50*(70-P)..
(Δ.Q/Q)/(Δ.P/P)Â =50*P/Q=10...
Q=5P.....P=63.63
and Q=318