Question 2 Suppose there are two firms in a market who each simultaneously choose

Question

Question 2:

Suppose there are two firms in a market who each simuaneously choose

a

quantity. Firm 1’s quantity is q1, and firm 2’s quantity is q2. Therefore the market quantity is Q = q1+ q2. The market demand curve is given by P = 100 – 4Q. Also, each firm has constant

marginal cost equal to 28. There are no fixed costs.

The marginal revenue of the two firms are given by:

MR1= 100 – 8q1- 4q2

MR2= 100 – 4q1- 8q2

.

A) How much output will each firm produce in the Cournot equilibrium?

B) What will be the market price of the good?

C) What is the deadweight loss that resus from this duopoly?

D) How much profit does each firm make?

E) Suppose Firm 2 produced 10 units of output. How much output should Firm 1 produce in order to maximize profit? (Hint: Use Firm 1’s Reaction Function)

Question 3:

Suppose there are 6 firms in an industry. The following table gives the total sales

of each firm:

Firm # Total Sales

1
200

2
90

3
80

4
60

5
40

6