Question

26. If the duopolists in question 24behave, instead, according to the Bertrand model, determine the (1) equilibrium price, (2) quantity, and (3) economic profits for the total market and (4) the consumer surplus, and (5) dead weight loss.

24. Cournot duopolists face a market demand curve given by P = 90 Q where Q is total market demand. Each firm can produce output at a constant marginal cost of 30 per unit.There are no fixed costs.Determine the (1)equilibrium price, (2) quantity, and (3) economic profits for the total market, (4) the consumer surplus, and (5)dead weight loss

Answer 1

Considering the product to be identical price war between Bertrand rivals will result in price being equal to marginal cost. When P = MC = 30, Q = 90 - 30 = 60 units. Economic profits are zero and cosnumer surplus is CS = 0.5*(max price - current price)*current qty = 0.5*(90 - 30)*60 = $1800. There is no deadweight loss

(1)equilibrium price is $30

(2) quantity is 60 units (30 each), and (3) economic profits for the total market is 0 (4) the consumer surplus is $1800 and (5)dead weight loss is 0.