here are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 − Q. Each firm’s cost is 30Q. There are no fixed costs. In this market, firms decide how much to produce, and then the price is determined by the market (think of fishing boats, for example). Suppose that Firm 2 produces 30. Then the inverse demand facing Firm 1 is P = 120 − 30 − Q1 = 90 − Q1. This implies that Firm 1’s marginal revenue is 90 −2Q1. How much will Firm 1 produce to maximize its profits? Suppose that Firm 1 produces 30. Then the inverse demand facing Firm 2 is P = 120 − 30 − Q2 = 90 − Q2. This implies that Firm 2’s marginal revenue is 90 −2Q2. How much will Firm 2 produce to maximize its profits? If both firms produce 30, what are both firms’ profits? Suppose the buyers in this market proposed that the firms compete in a price game rather than a quantity game. For example, they might suggest that sellers compete in a price auction before production takes place. The winner of that auction would get the whole market and meet demand at that price. If you were one of the two firms, would you be better off or worse off in a price game?
here are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 − Q. Each firm’s cost is 30Q. There are no fixed costs. In this market, firms decide how much to produce, and then the price is determined by the market (think of fishing boats, for example). Suppose that Firm 2 produces 30. Then the inverse demand facing Firm 1 is P = 120 − 30 − Q1 = 90 − Q1. This implies that Firm 1’s marginal revenue is 90 −2Q1. How much will Firm 1 produce to maximize its profits? Suppose that Firm 1 produces 30. Then the inverse demand facing Firm 2 is P = 120 − 30 − Q2 = 90 − Q2. This implies that Firm 2’s marginal revenue is 90 −2Q2. How much will Firm 2 produce to maximize its profits? If both firms produce 30, what are both firms’ profits? Suppose the buyers in this market proposed that the firms compete in a price game rather than a quantity game. For example, they might suggest that sellers compete in a price auction before production takes place. The winner of that auction would get the whole market and meet demand at that price. If you were one of the two firms, would you be better off or worse off in a price game?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
- There are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 − Q. Each firm’s cost is 30Q. There are no fixed costs. In this market, firms decide how much to produce, and then the price is determined by the market (think of fishing boats, for example).
- Suppose that Firm 2 produces 30. Then the inverse demand facing Firm 1 is P = 120 − 30 − Q1 = 90 − Q1. This implies that Firm 1’s marginal revenue is 90 −2Q1. How much will Firm 1 produce to maximize its profits?
- Suppose that Firm 1 produces 30. Then the inverse demand facing Firm 2 is P = 120 − 30 − Q2 = 90 − Q2. This implies that Firm 2’s marginal revenue is 90 −2Q2. How much will Firm 2 produce to maximize its profits?
- If both firms produce 30, what are both firms’ profits?
Suppose the buyers in this market proposed that the firms compete in a price game rather than a quantity game. For example, they might suggest that sellers compete in a price auction before production takes place. The winner of that auction would get the whole market and meet demand at that price. If you were one of the two firms, would you be better off or worse off in a price game?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 6 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education