Suppose two identical firms (A and B) engage in Cournot competition. Market demand is characterized by inverse demand P(Q)=500- 20Q. The marginal cost of both firms is 10. A) Determine the profit function for firm A. (5 marks) B) The corresponding marginal revenue curves associated with inverse demand are MRA=500-40qA-20qB for firm A and MRB=500-40qB-20qA for firm B. Determine the best-response functions for firms A and B. (10 marks) C) Calculate the Cournot equilibrium price and quantities, and the profits each firm makes. (10 marks) D) If the firms colluded, would the quantity offered to the market be higher or lower? Would deadweight loss be higher or lower? How do you know? (5 marks)

Suppose two identical firms (A and B) engage in Cournot competition. Market demand is characterized by inverse demand P(Q)=500- 20Q. The marginal cost of both firms is 10. A) Determine the profit function for firm A. (5 marks) B) The corresponding marginal revenue curves associated with inverse demand are MRA=500-40qA-20qB for firm A and MRB=500-40qB-20qA for firm B. Determine the best-response functions for firms A and B. (10 marks) C) Calculate the Cournot equilibrium price and quantities, and the profits each firm makes. (10 marks) D) If the firms colluded, would the quantity offered to the market be higher or lower? Would deadweight loss be higher or lower? How do you know? (5 marks)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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please explain in steps
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