The inverse demand for tea is given by P= 8 – 0.03Q, where Pis the price per a gram of tea and Q is the total number of grams of tea brought to market. There are two tea shops in the market. Shop 1's cost function is given by C = 0.02q,², where q, is the number of grams of tea it brings to market. Shop 2's cost function is given by C2 = 0.02q2², where q2 is the number of grams of tea it brings to market. Given that the two shops compete by setting output (Cournot), answer the following. a) Identify shop 1's reaction function to shop 2's output to within 2 decimal places (e.g. 0.33). 91= Number - Number 92 b) Identify shop 2's reaction function to shop 1's output to within 2 decimal places (e.g. 0.71). q2= Number Number 91 c) To within two decimal places (e.g. 0.63) what is the equilibrium output level of each shop and the equilibrium per gram price for tea. Shop 1 will produce Number grams of tea and shop 2 will produce Number grams of tea. The equilibrium market price is £ Number

The inverse demand for tea is given by P= 8 – 0.03Q, where Pis the price per a gram of tea and Q is the total number of grams of tea brought to market. There are two tea shops in the market. Shop 1's cost function is given by C = 0.02q,², where q, is the number of grams of tea it brings to market. Shop 2's cost function is given by C2 = 0.02q2², where q2 is the number of grams of tea it brings to market. Given that the two shops compete by setting output (Cournot), answer the following. a) Identify shop 1's reaction function to shop 2's output to within 2 decimal places (e.g. 0.33). 91= Number - Number 92 b) Identify shop 2's reaction function to shop 1's output to within 2 decimal places (e.g. 0.71). q2= Number Number 91 c) To within two decimal places (e.g. 0.63) what is the equilibrium output level of each shop and the equilibrium per gram price for tea. Shop 1 will produce Number grams of tea and shop 2 will produce Number grams of tea. The equilibrium market price is £ Number

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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