market, P = MC.
Since TC = 500 + Qe and MC = 1, then P = 50
–
0.1Q = 1.
Hence, Qe = 490 units.
Therefore, CS can be calculated as

ECON90015
Hence, CS = $12,005
Therefore, the regulated price is higher than the unregulated price. The price is lower
when MC = $25.5 but higher than $1 and the output generated more at 490 units.
b) -
ANSWER 3
a)
The inverse demand function for this market is P = (150
–
Q)/2
Since Q = Q1 + Q2, then P = (150 - Q1 - Q2)/2
The duopolies’
reaction function is their profit maximizing quantity, which is
expressed in terms of the other firm’s quantity. So the function form Q1 = f(2Q2)
must be found. First, Best Note’s optimal Q1 needs to be found. Using the profit
maximizing condition that MR
= MC and applying this to the firm’s residual demand
function,
P = (150 - Q1 - Q2)