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Chapters 11 and 12 – Practice Answers * For more practice, do the Practice Final Exam! * 1. Two identical firms face a market demand curve of: P = 200 – 2Q. Their marginal cost of production is a constant \$24. Assume that firms can produce partial units. a. Suppose the two firms form a successful cartel. How much will the firms produce, and what price will they charge? cartel they will act as if they are a monopoly What is MR? MR = 200 – 4Q (it has twice the slope of the demand curve) set: MR = MC 200 – 4Q = 24 Q = 44 q 1 = q 2 = 22 P = 200 – 2(44) = \$112 b. Suppose the firms behave as in the Cournot model of oligopoly. How much will the firms produce, and what price will they charge? TR 1 = P×q 1 = 200q 1 – 2q 1 2 – 2q 1 q 2 → MR 1 = 200 – 4q 1 – 2q 2 set: MR 1 = MC TR 2 = P×q 2 200 – 4q 1 – 2q 2 = 24 = 200q 2 – 2q 1 q 2 – 2q 2 2 q 1 = 44 – ½ q 2 → MR 2 = 200 – 2q 1 – 4q 2 set: MR 2 = MC 200 – 2q 1 – 4q 2 = 24 200 – 2[44 – ½ q 2 ] – 4q 2 = 24 q 2 = 29.33 → q 1 = 44 – ½ (29.33) = 29.33 → P = 200 – 2(29.33 + 29.33) = \$82.67 c. Suppose the firms behave as in the Bertrand model of oligopoly.

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