Joint equilibrium quantity, Microeconomics

The sole producer of the anti-diarrhea drug STOP supplies two retail pharmacies in an isolated village. The two pharmacies compete à la Cournot in a market characterized by an inverse demand function


                       P(Q)= 100-Q

where p  is the price consumers pay for a package of pills. The costs the pharmacies have per package sold are €40 plus the amount they have to pay for a package to the producer of STOP. Assume that the marginal cost of STOP is €12 per package and that there are no fixed costs. Moreover, suppose that STOP uses a two-part tariff with a price per package equal to S p and a fixed amount f  which both pharmacies require to pay to STOP to become its eligible suppliers.


a. Assume that the fixed amount f is so low that both retailers remain in the market. What is the joint equilibrium quantity of the two pharmacies that will be offered as a function of p ?


Posted Date: 3/28/2013 1:06:49 AM | Location : United States

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