1) A monopoly faces a demand curve P(Q) = 120 – 2Q, and has a marginal cost of 60. a. What is profit-maximizing level of output? What is the profit-maximizing price? How much profit the firm will make? b. Assume that a second firm enters the market. The new firm has an identical cost function. If the two firms enter in a Cournot competition, what will be the price in equilibrium? How much will each firm produce in equilibrium? How much profit will each firm make? c. If, instead, the two firms compete in a Stackelberg game (assume the incumbent firm is the leader), what will be the price in equilibrium? How much each firm will produce in equilibrium? How much profit will each firm make?

1) A monopoly faces a demand curve P(Q) = 120 – 2Q, and has a marginal cost of 60. a. What is profit-maximizing level of output? What is the profit-maximizing price? How much profit the firm will make? b. Assume that a second firm enters the market. The new firm has an identical cost function. If the two firms enter in a Cournot competition, what will be the price in equilibrium? How much will each firm produce in equilibrium? How much profit will each firm make? c. If, instead, the two firms compete in a Stackelberg game (assume the incumbent firm is the leader), what will be the price in equilibrium? How much each firm will produce in equilibrium? How much profit will each firm make?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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