We will continue with the familiar demand curve homework the previous section

Let the market demand for goods be with a linear curve:

   (p =A q^D/10),

where it is known that the maximum consumer willingness to pay (waiver price) is equal to 64

But now the thing is going on a little differently.

Two identical production technology companies produce a product.

 (the cost function C(q_i)= a+bq_i  (there is a fixed cost!)).

Suppose that each company's production capacity is so large that its output could saturate the market.

If this market would be fully competitive, then the equlibrium price would be so that the object of utilities market demand would be unitelastic. But now there are only two providers in this market is so ... (what form and what type of competition in the market?)

It depends on the market equilibrium solution (equilibrium price and quantity) participants' behavior, and also depends on the distribution of welfare between consumers and producers a profit-sharing between manufacturers. Make calculations and analyze the results (answers in the table)!

1. Participants behave as profit independent maximizers (Cournot solution). Why is this a permanent solution?

2. One of the participants (select which one!) Decided to become a volume leader, hoping that by acting as a second (Stackelberg solution). Why this solution is not likely to be permanent? What next for short view, and what happens in the long term?

3. Participants enter into a cartel agreement. What happens when one (choose which one!) Decides to violate the treaty?

What is the most favorable outcome from the consumer and the producers (think short term and long-term!)

Suppose, now, finally, that the Cournot model, the balance of the market enters another provider who acts as an independent profit maximizer. Scroll to the market equilibrium price and quantity.