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Unformatted text preview: total profit maximizing quantity Q . Revenues in this market can be described as: Total Revenue = P * Q = (90 - Q) * Q = 90 * Q - Q^2 Marginal Revenue is therefore: MR = 90 - 2 * Q Imposing the profit maximizing condition ( MR = MC ) , we conclude: Q = 45 Each firm now produces 22.5 units for a total of 45 in the market. The market price P is therefore 45. Each firm makes a profit of 1,012.5 for a total profit of 2,025. Notice that the Cournot equilibrium is much better for the firms than perfect competition (under which no one makes any profits) but worse than the collusive outcome. Also, the total quantity supplied is lowest for the collusive outcome and highest for the perfectly competitive case. Because the collusive outcome is more socially inefficient than the competitive oligopoly outcome, the government restricts collusion through anti-trust laws....
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- Fall '11