SUB-SECTION B2 13 Electra and Luminux are the only two firms who provide electricity in a local market as a Cournot duopoly. The electricity provided by the two firms is identical and consumers are indifferent about which firm they will purchase electricity from. The market inverse demand for electricity is P = 100 - 2Q, where is the aggregate quantity of electricity produced by the two firms, qE+qL. Electra has a marginal cost of 12, while Luminux has a marginal cost of 20. Assume that neither firm has any fixed costs. (a) Determine each firm's reaction curve and graph it. How much electricity will each firm produce in a Cournot equilib- rium? (c) What will the market price for electricity be? How much profit does each firm make? (e) Suppose now that the two firms move sequentially with one of them acting as a Stackelberg leader. Do you expect the outcome to the closer to perfect competition when Electra, or when Luminux, moves first? Explain your answer.

SUB-SECTION B2 13 Electra and Luminux are the only two firms who provide electricity in a local market as a Cournot duopoly. The electricity provided by the two firms is identical and consumers are indifferent about which firm they will purchase electricity from. The market inverse demand for electricity is P = 100 - 2Q, where is the aggregate quantity of electricity produced by the two firms, qE+qL. Electra has a marginal cost of 12, while Luminux has a marginal cost of 20. Assume that neither firm has any fixed costs. (a) Determine each firm's reaction curve and graph it. How much electricity will each firm produce in a Cournot equilib- rium? (c) What will the market price for electricity be? How much profit does each firm make? (e) Suppose now that the two firms move sequentially with one of them acting as a Stackelberg leader. Do you expect the outcome to the closer to perfect competition when Electra, or when Luminux, moves first? Explain your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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