Question

Tim Corporation and Sandra Inc. are sole producers of cement in Carnegistan. They each have marginal cost of 10 dollars per ton and produce 30 million tons of cement annually. The initial price in the market is 30 per tons.

a) Should you model this as Cournot or Bertrand competition?

b) What is the (linear) demand function and profit for each firm in the market?

Now assume that Tim corporation has decided to change their target and instead of maximizing profit they aim as maximizing revenue. Sandra Inc. continues to maximize their profit.

c) What is Tim corporation’s best response function?

d) What is Sandra Inc’s best response function?

Answer 1

(a).

Cournot - when firms preferred quantities ,the equilibrium output involves Firms pricing above additional costs And at last the final price.

Bertrand- if firms preffered prices , then MC = price.

This model would be cournot model because intial and final prices are same.

(B).

linear demand function  shows amount of goods consumers are willing to purchase at a given market price.

Profit of each firm is the difference between total revenue amd total cost.

(C).

Tim corp. Best response function would be that it produces more products instead of prices to maximise profit.

Sandra inc. should focus on pricing instead of production of goods.

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