Reference no: EM132908481

For each market, the market demand is the following. QD=100-P. The price that your goods will sell at is the highest price at which all the goods produced would sell (P=100-Q). For instance, if there are two firms and the first firm produces 5 units and the second firm produces 6 units, then the price that goods will be sold at is $89 each. If 20 total units are sold, the price would be $80 each. The marginal cost of producing a unit of a good for your firm is $5 for each unit (no fixed cost). Thus in the first example above, the revenue for the first firm would be 5 X $89 = $445 and the cost would be 5 X $5 = $25. The profit would then be $420.

The way the games works is that all of the firms simultaneously announce theiroutput. The price is determined by the sum of all of the output produced by the firms and the demand for the product. Each firm's profit is then calculated as in the above example.

Before beginning, solve the following problems as a group.

1) Suppose that the other firms together produce a total of 25 units of output. If you produce 20 units what will be your profit?

2) Suppose that the other firms together produce a total of 80 units of output. If you produce 20 units what will be your profit?

3) If the other firms produce 50 units of output together, what is the level of output you should produce to maximize your profit? (The residual demand is the original demand less the output produced by the other firms, Q=100-50-P.)