Answered: 1. Two firms compete in a market to…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Two firms compete in a market to sell a homogeneous product with inverse demand function P = 960-6Q. Each firm produces at a constant marginal cost of $60 and has no fixed costs.

a.Assuming the firms collude and act as a monopolist, compute
i. Equilibrium price and quantity
ii. Total profits
iii. Consumer surplus
iv. Total welfare loss relative to perfect competition (if any)

b. Assuming perfect competition, compute
i. Equilibrium price and quantity
ii. Profits and producer surplus
iii. Consumer surplus and total surplus

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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