How much profit does each firm make

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Suppose there are two firms in a market who each simultaneously 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. <P>

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The marginal revenue of the two firms are given by: <P>

· MR1 = 100 – 8q1 – 4q2 <P>

· MR2 = 100 – 4q1 – 8q2. <P>

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

B) What will be the market price of the good? <P>

C) What is the deadweight loss that results from this duopoly? <P>

D) How much profit does each firm make? <P>

E) Suppose Firm 2 produced 10 units of output. How much output should Firm 1 produce in order to maximize profit?

Reference no: EM13151295

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