The industry demand is P(y) = 14 – 2y. There are two firms with cost functions C1(y1) = 0 and C2(y2) = 0, respectively. a) Find the Cournot equilibrium: quantities, prices, profits, and total surplus.

The industry demand is P(y) = 14 – 2y. There are two firms with cost functions C1(y1) = 0 and C2(y2) = 0, respectively. a) Find the Cournot equilibrium: quantities, prices, profits, and total surplus.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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Question

The industry demand is P(y) = 14 – 2y. There are two firms with cost functions C1(y1) = 0 and C2(y2) = 0, respectively.

a) Find the Cournot equilibrium: quantities, prices, profits, and total surplus.

b) Suppose now that the two firms are owned by the same owner. Find the quantity, price, profit, and surplus. Compare your findings to the magnitudes in part (a).

c) Find the maximal surplus possible in this industry. Point out two different sources of inefficiency which makes this total surplus in part (a) smaller.

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