Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good. Both firms have the same constant marginal cost: MC = m = 40. The demand in this market is given by: Q = 100.25p ⇒p = 400 - 4Q Let p₁, 9₁, and ₁ denote the price charged by firm 1, the quantity firm 1 produces and sells, and firm 1's profits, respectively. Analogously, let p₂, 92, and ₂ denote the price, quantity, and profits of firm 2. When appropriate, assume the firms split total quantity and profits evenly.
Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good. Both firms have the same constant marginal cost: MC = m = 40. The demand in this market is given by: Q = 100.25p ⇒p = 400 - 4Q Let p₁, 9₁, and ₁ denote the price charged by firm 1, the quantity firm 1 produces and sells, and firm 1's profits, respectively. Analogously, let p₂, 92, and ₂ denote the price, quantity, and profits of firm 2. When appropriate, assume the firms split total quantity and profits evenly.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume Firm 1 and Firm 2 compete by choosing their quantities sequentially (Stackelberg
oligopoly with identical products). Assume further that firm 1 moves first. Find the price,
quantity, and profit of each firm in equilibrium. Which of the following alternatives is correct?
$220, q₁ q2 = 22.5, and ₁ = ₂ = $4,050
=
$130, q₁ = 45, q2 = 22.5,₁ = $4,050, and #₂ = $2,025
$130, q₁ = 25.5, q2 = 45,₁ = $2,025, and I₂ =
92 = 30, and ₁ = ₂ = $3,600
4,050
$160, 91
(a) P₁ = P₂ =
(b) P₁ = P2 =
(c) P₁ = P2 =
(d) P₁
P₂ =
Transcribed Image Text:Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good.
Both firms have the same constant marginal cost: MC = m = 40.
The demand in this market is given by:
Q = 100.25p ⇒ p = 400 - 4Q
Let p₁, 9₁, and ₁ denote the price charged by firm 1, the quantity firm 1 produces and sells, and
firm 1's profits, respectively. Analogously, let p₂, 92, and ₂ denote the price, quantity, and
profits of firm 2.
When appropriate, assume the firms split total quantity and profits evenly.
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