There are two types of car, distinguished by how fuel efficient they are. Type O is the less fuel efficient type, and type 1 is the more fuel efficient. The inverse demand curves for the two types of car are: Po = 250 – Qo – Q1/2, P = 120 – Q1 – Qo/2. (1) Cost functions are Co(Qo) = 50Q0, C:(Q1) = 20Q1 (2) respectively. 1. Until question 5, we consider a "feebate" or "Clean Car Discount". That generally means there would be a subsidy on the purchase of some cars, and a tax on others, but in the following analysis it will be possible to have taxes on both or subsidies on both. In the current question, assume that there are two monopolies, one for type 0 cars and one for type 1 cars. Mathematically, this is equivalent to a Cournot duopoly with differentiated goods.

There are two types of car, distinguished by how fuel efficient they are. Type O is the less fuel efficient type, and type 1 is the more fuel efficient. The inverse demand curves for the two types of car are: Po = 250 – Qo – Q1/2, P = 120 – Q1 – Qo/2. (1) Cost functions are Co(Qo) = 50Q0, C:(Q1) = 20Q1 (2) respectively. 1. Until question 5, we consider a "feebate" or "Clean Car Discount". That generally means there would be a subsidy on the purchase of some cars, and a tax on others, but in the following analysis it will be possible to have taxes on both or subsidies on both. In the current question, assume that there are two monopolies, one for type 0 cars and one for type 1 cars. Mathematically, this is equivalent to a Cournot duopoly with differentiated goods.

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

Chapter2: Fundamental Economic Concepts

Section: Chapter Questions

Problem 2E

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