Two firms sells an identical product. The demand function for each firm is given: Q = 20 - P, where Q = q1 + q2 is the market demand and P is the price. The cost function for reach firm is given: TCi = 10 + 2qi for i = 1, 2. a) If these two firms collude and they want to maximize their combined profit, how much are the market equilibrium quantity and price? b) If these two firms decide their production simultaneously, how much does each firm produce? What is the market equilibrium price? c) If Firm 1 is a leader who decides the production level first and Firm 2 is a follower, how much does each firm produce? What is the market equilibrium price?
Two firms sells an identical product. The demand function for each firm is given: Q = 20 - P, where Q = q1 + q2 is the market demand and P is the price. The cost function for reach firm is given: TCi = 10 + 2qi for i = 1, 2. a) If these two firms collude and they want to maximize their combined profit, how much are the market equilibrium quantity and price? b) If these two firms decide their production simultaneously, how much does each firm produce? What is the market equilibrium price? c) If Firm 1 is a leader who decides the production level first and Firm 2 is a follower, how much does each firm produce? What is the market equilibrium price?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Two firms sells an identical product. The
is given: Q = 20 - P, where Q = q1 + q2 is the market demand and P is the price. The cost
function for reach firm is given:
TCi = 10 + 2qi for i = 1, 2.
a) If these two firms collude and they want to maximize their combined profit, how much
are the market
b) If these two firms decide their production simultaneously, how much does each firm
produce? What is the market
c) If Firm 1 is a leader who decides the production level first and Firm 2 is a follower, how
much does each firm produce? What is the market equilibrium price?
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