Two competing firms produce homogenous products. They also have the iden-tical total cost function: if a firm i produces quantity q, then its total cost is C, (4.) = 2q«-If the two firms compete in quantities (Cournot model of duopoly), then the marketdemand is P (g1, 2) = 60 – q1 - 2.If the two firms compete in prices (Bertrand model of duopoly) and firm i chooses pricethen the demand for firm i isP..60-P if p, is lower than the competitor's priceif p, is higher than the competitor's priceif p, is equal to the competitor's priceNow consider two scenarios:A. The two firms are two law firms. One unit of product = one hour of labour.B. The two firms are two avocado farms. One unit of product = one ton of avocados.For each of these two scenarios, answer the following questions:(a) Should we use the Cournot model or the Bertrand model to study the firms' compe-tition?(b) Use your model of choice to predict each firm's profit level in equilibrium.(c) If the two firms collude as a monopoly and split profit evenly, what is each firm'sprofit level?

Cournot's competition is the one in which the firms simultaneously decide the output to be produced…

For each of these two scenarios, answer the following questions: (a) Should we use the Cournot model or the Bertrand model to study the firms' compe- tition? (b) Use your model of choice to predict each firm's profit level in equilibrium. (c) If the two firms collude as a monopoly and split profit evenly, what is each firm's profit level??

For each of these two scenarios, answer the following questions: (a) Should we use the Cournot model or the Bertrand model to study the firms' compe- tition? (b) Use your model of choice to predict each firm's profit level in equilibrium. (c) If the two firms collude as a monopoly and split profit evenly, what is each firm's profit level??

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

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 2E

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