Calculate the profit maximizing market output

Reference no: EM133367490

Suppose there are two firms, A and B, operating in a market and compete on output choices. No other firm can enter the market. Suppose further that the market demand curve is: P = 12000 - 100(QA+QB) a. (1 point) Calculate and draw each firm's best response function. Put QA on the Y axis and QB on the X axis.

1. Suppose there are two firms, A and B, operating in a market and compete on output choices. No other firm can enter the market. Suppose further that the market demand curve is:
P = 12000 - 100(QA+QB)

MC = 400

b. Solve for the Nash Equilibrium output levels for each firm, and calculate the market price and the corresponding economic profits for each firm. Identify this point on the graph you drew in part a.

c. Suppose instead that the firm's colluded and acted like a single monopolist. So the market demand curve is now: P = 12000 - 100Q where Q = QA+QB. Assume that MC = $400. Calculate the profit maximizing market output and price levels. Assume that each firm produces half of the market output and splits evenly the monopoly profit. What are the output and profit levels for each firm?

d. Suppose firm A believes that firm B will produce the output level identified in part c. Is it optimal for firm A to produce their output level identified in part C, or would there be another output level for firm A to maximize their own profits? Hint: Use your work in part A.

Reference no: EM133367490

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