What are the cournot equilibrium quantities and profits

Reference no: EM133596667

Problem

Adventure Cycles and The Bike Connection are located side-by-side just outside a national park in the Northeast. The shops offer daily bicycle rentals. The market price in dollars of a daily rental is given by P(qt0tal) = 50 - qt0tal = 50 - (qA + qB), where qA is the number of bikes supplied by Adventure Cycles and qB the number of bikes supplied by the Bike Connection. The marginal cost of a rental is $5 for both bike shops.

1. What are the Cournot equilibrium quantities and profits for each firm?

Now suppose that Adventure Cycles' marginal cost is still $5, but the Bike Connection's marginal cost is $2, giving it a cost advantage.

2. What are the new Cournot equilibrium quantities and profits for each firm?

Now suppose that the Bike Connection's marginal cost is still $2. But suppose Adventure Cycles' marginal cost has jumped to $30. (They lost their entire fleet of bikes in a transportation accident; the cost of $30 per bike is because they still have the option of renting bikes from a near-by town and then renting them out to park visitors.)

3. What are the new Cournot equilibrium quantities and profits for each firm?

Reference no: EM133596667

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