Kafue Water and Sewerage Company and Lusaka Water and Sewerage Company are duopolistic firms operating under the Cournot model. The two companies are both supplying Water to Chilanga District whose total demand is given by a linear demand function Q = 720 – 2P = 3q1 + 3q2, where q1 represents water output by Kafue Water, and q2 is water output by Lusaka Water and Sewerage Company. Assume that: Each firm has no production costs Each firm has to decide how much water to supply to the market Given the above information, determine The profit-maximizing output, price, and level of profit for the two companies. The individual level of outputs q1 and q2, as well as the revenue for which the two companies are maximizing profits.
Kafue Water and Sewerage Company and Lusaka Water and Sewerage Company are duopolistic firms operating under the Cournot model. The two companies are both supplying Water to Chilanga District whose total demand is given by a linear demand function Q = 720 – 2P = 3q1 + 3q2, where q1 represents water output by Kafue Water, and q2 is water output by Lusaka Water and Sewerage Company. Assume that: Each firm has no production costs Each firm has to decide how much water to supply to the market Given the above information, determine The profit-maximizing output, price, and level of profit for the two companies. The individual level of outputs q1 and q2, as well as the revenue for which the two companies are maximizing profits.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- Kafue Water and Sewerage Company and Lusaka Water and Sewerage Company are duopolistic firms operating under the Cournot model. The two companies are both supplying Water to Chilanga District whose total
demand is given by a linear demand function Q = 720 – 2P = 3q1 + 3q2, where q1 represents water output by Kafue Water, and q2 is water output by Lusaka Water and Sewerage Company. Assume that:
- Each firm has no production costs
- Each firm has to decide how much water to supply to the market
Given the above information, determine
- The profit-maximizing output,
price , and level of profit for the two companies. - The individual level of outputs q1 and q2, as well as the revenue for which the two companies are maximizing profits.
- Interpret your results in (i) and (ii)
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