a) Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph. b) The (inverse) demand function facing a mineral water monopolist is given by: P = 200 – 10Q The marginal revenue (MR) function is, therefore, given by: MR = 200 – 20Q Assuming again that marginal and total costs are zero, demonstrate that firms A and B have an incentive to cooperate and maximize joint profits. That is, compare profits earned in Cournot equilibrium to a situation of joint monopoly.
3. Two firms, A and B, have complete control of the supply of mineral water and both have
zero costs. Their best reply functions (BRP) are given by:
qA = 10 - .5qB
qB = 10 - .5qA
a) Find the Cournot solution for the market price and output of mineral water and
illustrate with a simple graph.
b) The (inverse) demand function facing a mineral water monopolist is given by:
P = 200 – 10Q
The marginal revenue (MR) function is, therefore, given by:
MR = 200 – 20Q
Assuming again that marginal and total costs are zero, demonstrate that firms A and B
have an incentive to cooperate and maximize joint profits. That is, compare profits
earned in Cournot equilibrium to a situation of joint
Profit is the amount that the company earns after the deduction of all the costs and expenses.
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