Question

Over the years, the market for instant noodles in Indonesia has developed into a duopoly market where two companies Indofood (Indomie – Firm 1) and Wings Food (Mie Sedaap – Firm 2) are competing. Nevertheless, as the first entrant, Indomie has created advantages which rendered it as the market leader.

The inverse demand function for the market is P = 100 – 0.75(Q1+Q2), and the cost function for both Indomie and Mie Sedaap is identical and given by Ci(Qi) = 4Qi.

1. Under the above conditions, what is the market price for the instant noodles in Indonesia?
2. What are the quantity produced by each Indofood and Wings Food, and the total production in the market?
3. What is the profit for Indofood and Wings Food?
4. What would be the market price for instant noodles if there is no market leader and each firm makes an output decision under the belief that is rival will hold its output constant when the other changes its output level?

Answer 1