The demand faced by grenada is p 100 q p q g q g q g

– 0.5 q
G
G

162 Part 3 Markets and Prices
= MC
20
= $40
$800
$400
14. Consider the Cournot-Stackelberg competing islands of Penang and Grenada discussed in the previous problem.
What will happen to Grenada’s and Penang’s output if:
a. Grenada’s cost of production decreases to $16, while Penang’s stays at $20. Explain.
b. Penang’s cost of production decreases to $16, while Grenada’s stays at $20. Explain.
= MC
q
P
= MC
G
– 0.5 q
G
= MC
– q
P
= 18
= MC
P
= MC
G

Imperfect Competition Chapter 11 163
– 0.5 q
G
= MC
= 23