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ch12_p1 - 1 and Q 2 c Suppose(as in the Cournot model that...

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12_1.  A monopolist can produce at a constant average (and marginal) cost of AC = MC = 5.  It faces a market demand curve given by Q = 53 - P. a. Calculate   the   profit-maximizing   price   and   quantity   for   this   monopolist.     Also  calculate its profits. b. Suppose a second firm enters the market.  Let Q 1  be the output of the first firm and  Q 2  be the output of the second.  Market demand is now given by Q 1  + Q 2  = 53 - P. Assuming that this second firm has the same costs as the first, write the  profits of each firm as functions of Q
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Unformatted text preview: 1 and Q 2 . c. Suppose (as in the Cournot model) that each firm chooses its profit-maximizing level of output on the assumption that its competitor’s output is fixed. Find each firm’s “reaction curve” (i.e., the rule that gives its desired output in terms of its competitor’s output). d. Calculate the Cournot equilibrium (i.e., the values of Q 1 and Q 2 for which both firms are doing as well as they can given their competitors’ output). What are the resulting market price and profits of each firm?...
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