Licensed permission for two producers-alpha and beta

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Reference no: EM132239150

The state of birdwatch is legalizing energy drink, and have been given licensed permission for two producers, Alpha and Beta. Before the market is opened, Alpha and Beta will make an irreversible Decision about the production capacity. They know that after the market is opened the entire capacity will be used, because the marginal cost of actual production is zero. The demand for energy drinks in Bird Watching is Qd (P) = 100 -0.5P, where the price is in the bucks / liter and amount in millions of liters. The production facility has a basic cost of 500 million bucks. Additionally, the production capacity will cost 50 bucks per every liter.

(a) What are the profits of a company if they choose their capacity before they know each others choices? What is the price of an energy drink then?

(b) If Alpha and Beta can be merged into a monopoly, and additional licensed permissions is not given, so what are its profits? And what about the Energy Drinking Litre Price?

(c) If the same production technology using companies can enter the market, then how many companies on the market would be in balance, what would be their profits and what would be energy drink litre price?

Reference no: EM132239150

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