Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs. a) Get the profit functions of each of the companies based on q1 and q2. b) Obtain the reaction curves of each of the companies. c) How many punctures a day will each company repair in the Cournot equilibrium?
Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs. a) Get the profit functions of each of the companies based on q1 and q2. b) Obtain the reaction curves of each of the companies. c) How many punctures a day will each company repair in the Cournot equilibrium?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Exercise 6.4.
Suppose there are only two companies (1 and 2) that fix flat tyres in the local market and compete in a duopoly of Cournot. The two companies repair punctures identically, so consumers will not care about repairing the puncture in company 1 or 2. The inverse demand curve for this market is: P=100-2Q, where Q is the total number of punctures repaired per day by the two companies, that is: Q=q1+q2. The marginal cost of repairing a flat tyre for company 1 is 12 euros, while for company 2 it is 20 euros. We will assume that neither company has fixed costs.
- a) Get the profit functions of each of the companies based on q1 and q2.
- b) Obtain the reaction curves of each of the companies.
- c) How many punctures a day will each company repair in the Cournot equilibrium?
- d) What will be the market price of repairing a puncture?
- e) What profit will each company obtain in a day?
- f) Show with graphs.
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- d) What will be the market
price of repairing a puncture? - e) What profit will each company obtain in a day?
- f) Show with graphs.
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