Question

1. Suppose that the market demand curve is given by Q = 200 – 2P and the production costs are zero for each of four oligopolists.

1. Determine the level of output of each of the four oligopolists.
2. Determine the price at which each of the oligopolists sells.
3. If there had been five oligopolists instead of three what would be the price and quantity?

Answer 1

We know that in case of oligopoly,

If P=a-bQ

and Ci(q)=cqi, and there are N firms, equilibrium output of each firm is given by

and

a)

Given Q=200-2P

2P=200-Q

P=100-0.5Q

On comparing with P=a-bQ, we get

a=100, b=0.5

Given

MC=c=0 and N=4

So,

So, output of each firm is 40 units

b)

Price=20 units

c)

Given N=5

Output of each firm is 33.33 units and price is 16.67 unit.