Question

A duopoly faces a market demand of p = 150 - Q. Firm 1 has a constant marginal cost of MC= $20. Firm 2's constant marginal cost is MC2 = $40. Calculate the output of each firm, market output, and price if there is (a) a collusive equilibrium or (b) a Cournot equilibrium. The collusive equilibrium occurs where q, equals and q2 equals (Enter numeric responses using real numbers rounded to two decimal places) Enter your answer in the edit fields and then click Check Answer. 5 parts remaining Clear All Check Answer

Answer 1

In a collusive equilibrium, the firms would act like a monopoly and choose the output level where MR equals MC. In a Cournot equilibrium, the firms would independently choose their output levels to maximize their profits.

Step-by-step explanation:

In a collusive equilibrium, the firms would act like a monopoly and choose the output level where MR (marginal revenue) equals MC (marginal cost). Firm 1 has a constant marginal cost of $20, so it will produce at Q1 = 150 - Q, if it is a collusive equilibrium, then Q1 = Q2 = Q, market output = Q1 + Q2, and price = 150 - Q1 - Q2.

In a Cournot equilibrium, the firms would independently choose their output levels to maximize their profits. In this case, Firm 1's marginal cost is $20, so it will produce at Q1 = 150 - Q2 - MC1, while Firm 2's marginal cost is $40, so it will produce at Q2 = 150 - Q1 - MC2. Market output = Q1 + Q2, and price = 150 - Q1 - Q2.