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Homework answers / question archive / Two firms producing spring water of identical quality at zero cost (marginal and fixed costs of both firms are zero) are competing in the style of Cournot

Two firms producing spring water of identical quality at zero cost (marginal and fixed costs of both firms are zero) are competing in the style of Cournot

Economics

Two firms producing spring water of identical quality at zero cost (marginal and fixed costs of both firms are zero) are competing in the style of Cournot. The market (inverse) demand for their product is given by P(Q) = 44 - 11Q, where Q is the combined output of both firms. Which of the following is true? The price in the Nash equilibrium will be lower than the monopoly price but higher than the marginal cost of the firms. The Nash equilibrium will involve no deadweight loss because marginal and fixed costs are zero for both firms. The price in the Nash equilibrium will be zero because each firm will try to undercut the other firm s price until no firm can further reduce its price. The Nash equilibrium will be efficient with at least two firms in the market. None of the above.

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