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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 D i 2 3 4 5 6 7 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
Demand is P = 40 - 4Q and so MR = 40 - 8Q. MC is 8. Hence a = 40, m = 8 and b = 4
a) Cartel behaves like a monopoly so MR = MC gives Q = (40 - 8)/8 = 4 units and price P = 40 - 4*4 = $16
b) This brings price down to MC so price is 8 and market quantity is 8 units
c) Use each firm quantity as q1 = q2 = (a - m)/3b
= (40 - 8)/12
= 2.67
Market quantity is q1 + q2 = 5.33 and price = 18.67
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