For Company A, the long-run equilibrium output is and the selling price is $ . For Company B, the long-run equilibrium output is , and selling price is $ . At the equilibrium output, Company A earns total profits of $ and Company B earns total profits of $ . Therefore, the total industry profits are $ .

For Company A, the long-run equilibrium output is and the selling price is $ . For Company B, the long-run equilibrium output is , and selling price is $ . At the equilibrium output, Company A earns total profits of $ and Company B earns total profits of $ . Therefore, the total industry profits are $ .

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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Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function: P= 200-Qa-Qb where QAQA and QBQB are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TCa=1,500+55Qa+Qa2 TCb=1,200+20Qb+2Qb2 Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case, Company A will produce units and sell at $ . Similarly, Company B will produce units and sell at $ . At the optimum output levels, Company A earns total profits of $ and the marginal cost of Company B earns total profits of $ . Therefore, the total industry profits are $ . At the optimum output levels, the marginal cost of Company A is $ and the marginal…
Assume that two companies (A and B) are duopolists who produce identical products. Demand for the products is given by the following linear demand function: P=200− Q A − Q B where Q A and Q B are the quantities sold by the respective firms and P is the selling price. Total cost functions for the two companies are TC A =1,500+55 Q A + Q A 2 TC B =1,200+20 Q B +2 Q B 2 Assume that the firms form a cartel to act as a monopolist and maximize total industry profits (sum of Firm A and Firm B profits). In such a case, Company A will produce units and sell at . Similarly, Company B will produce units and sell at . At the optimum output levels, Company A earns total profits of and Company B earns total profits of . Therefore, the total industry profits are . At the optimum output levels, the marginal cost of Company A is and the marginal cost of Company B is . The following table shows the long-run equilibrium if the firms act independently, as in the Cournot model…
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