Question 2:A market is contested by two firms, A and B, who compete in selling a homoge-neous good. Market demand is given by Q = 240 3p, where p is the price ofthe good. Firm A has constant marginal costs of 20 as long as it produces 100units or fewer. Every unit above 100 costs 75 to produce. Firm B has the costfunction CB = Q3, where QB is the quantity produced by firm B.The firms sequentially choose prices. A is the market leader and chooses itsprice first; B chooses its price after observing A's price. If they charge the sameprice each sells half of the demand at that price. The firms cannot turn awaycustomers.What is the equilibrium price in this industry?

Market demand function : Q = 240 - 3P Inverse demand : P = 80 - 0.33Q MC for firm A = 20 Cost…

A market is contested by two firms, A and B, who compete in selling a homoge- neous good. Market demand is given by Q = 240-3p, where p is the price of the good. Firm A has constant marginal costs of 20 as long as it produces 100 units or fewer. Every unit above 100 costs 75 to produce. Firm B has the cost function CBQ, where QB is the quantity produced by firm B. The firms sequentially choose prices. A is the market leader and chooses its price first; B chooses its price after observing A's price. If they charge the same price each sells half of the demand at that price. The firms cannot turn away customers. What is the equilibrium price in this industry?

A market is contested by two firms, A and B, who compete in selling a homoge- neous good. Market demand is given by Q = 240-3p, where p is the price of the good. Firm A has constant marginal costs of 20 as long as it produces 100 units or fewer. Every unit above 100 costs 75 to produce. Firm B has the cost function CBQ, where QB is the quantity produced by firm B. The firms sequentially choose prices. A is the market leader and chooses its price first; B chooses its price after observing A's price. If they charge the same price each sells half of the demand at that price. The firms cannot turn away customers. What is the equilibrium price in this industry?

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter25: Monopoly

Section: Chapter Questions

Problem 9E

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