9: Suppose there are two restaurants on an island, Ace's (A) and Betty's (B). They both have to decide how many meals, q4 and qB, to sell per day. For Q = q4 + qB, the market demand function for meals is p = 120 – Q Both restaurants face a marginal cost per meal of $30. (1) Find the Cournot equilibrium quantities and prices. (2) What if the restaurants decide to form a cartel and split the production and profits evenly. How much will each firm produce and what price do they charge? (3) Suppose they competed with prices instead of quantities. Find the Bertrand equilibrium quantities and prices. (4) Find the deadweight loss of Cournot competition, Bertrand competition, and of the cartel outcome. Then rank each of these from least deadweight loss to most deadweight loss. For the rest of the problem, assume firms compete in quantities (Cournot) and there is no cartel. (5) Suppose Betty's marginal cost per meal increases to $60. Ace's marginal cost remains at $30. What are the new Cournot equilibrium quantities and prices?

9: Suppose there are two restaurants on an island, Ace's (A) and Betty's (B). They both have to decide how many meals, q4 and qB, to sell per day. For Q = q4 + qB, the market demand function for meals is p = 120 – Q Both restaurants face a marginal cost per meal of $30. (1) Find the Cournot equilibrium quantities and prices. (2) What if the restaurants decide to form a cartel and split the production and profits evenly. How much will each firm produce and what price do they charge? (3) Suppose they competed with prices instead of quantities. Find the Bertrand equilibrium quantities and prices. (4) Find the deadweight loss of Cournot competition, Bertrand competition, and of the cartel outcome. Then rank each of these from least deadweight loss to most deadweight loss. For the rest of the problem, assume firms compete in quantities (Cournot) and there is no cartel. (5) Suppose Betty's marginal cost per meal increases to $60. Ace's marginal cost remains at $30. What are the new Cournot equilibrium quantities and prices?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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