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The graph shows the market demand curve
The graph shows the market demand curve. Price ($) 40 36 32 28 24 20 16 12 MC = AC 8 4 MR 0 1 1 2 4 6 7 3 5 8 9 10 Quantity What are the equilibrium price and market output under the following market structures? a. a two-firm cartel b. Bertrand competition with identical goods c. Cournot duopoly with identical goods
Expert Solution
Answer (a)
A two-firm cartel obtain their market equilibrium at the level of output and price where marginal cost curve crosses the marginal revenue curve (at MR = MC).
At MR = MC, equilibrium price = $24 and equilibrium quantity = 4 units.
Answer (b) :
Bertrand competition obtain its market equilibrium at price equal to the marginal cost (P=MC) and the equilibrium output is set to be at the point on the demand curve where MC curve intersects the demand curve, therefore ;
At P=MC, equilibrium price =$8 and equilibrium output is 8 units
Answer (C) :
The In case of Cournot duopoly, market equilibrium is achieved at MR =MC,
Therefore, equilibrium price =$24 and equilibrium quantity = 4 units
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