Suppose we have two identical firms A and B, selling identical products

Economics Dec 06, 2020

Suppose we have two identical firms A and B, selling identical products. They are the only firms in the market and compete by choosing quantities at the same time. The Market demand curve is given by P=200-Q. The only cost is a constant marginal cost of $17. If Firm A produces a quantity of 50 and Firm B produces a quantity of 40, what is market price? Enter a number only, no $ sign.

Expert Solution

Answer = 110

Market demand curve is P = 200 - Q

Q = market quantity (firm A + firm B)

Firm A produces 50 while firm B produces 40

Q = 50 + 40 = 90

So substituting the value of Q in the market demand curve to get the market price

P = 200 - 90 = 110

So market price is $110

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