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Suppose mountain spring water can be produced at no cost and the inverse demand for mountain spring water is P = 1200 – 0.2Q. Answer the following questions.

a. Suppose the market of mountain spring water is supplied by a monopoly firm that cannot price discriminate. Find the monopoly firm’s profit-maximizing price and quantity of production. (10 pts.) [Hint: MR = P + (ΔP/ΔQ)*Q]

b. Suppose the market of mountain spring water is supplied by two firms (Firm A and firm B) that behave like a Cournot duopoly. Find the Nash Equilibrium price and quantity of production for each firm. (10 pts.) [Hint: Q = QA + QB; MRA = P + ((ΔP/ΔQA)*QA and MRB = P + ((ΔP/ΔQB)*QB]

c. Suppose the market of mountain spring water is supplied by two firms (Firm A and firm B) that behave like a Stackelberg duopoly where firm A is the leader and firm B is the follower. Find the Nash Equilibrium price and quantity of production for each firm. (10 pts.) [Hint: Q = QA + QB; MRA = P + ((ΔP/ΔQA)*QA and MRB = P + ((ΔP/ΔQB)*QB]

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91870098

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