Question

1. You are the CEO of a firm that is producing T-shirts for the Latin C-Function (the year’s “Best C-Function” and a Best of Boston Hall-of-Famer according to Boston Magazine). Assume you are operating as a duopolist. Both you and your competitor must decide now how many T-shirts to produce. (There is some lead-time involved in producing the T-shirts.) Once you have decided how many shirts to produce, you cannot revise your decision and you cannot produce a second set of shirts (i.e. you only play the “game” once). Assume that both you and your competitor’s T-shirts are similar (i.e. undifferentiated products).

There is a market study (accessible to you and your competitor) that analyses the demand for these T-shirts. The market demand is given by the following equation: Q=100-P where Q = qyou + qcompetitor .You and your competitor both have constant marginal cost equal to MC1=MC2=10.

1. How many T shirt you will produce?
2. What would be the equilibrium price?

I'm stuck with this question. Can somebody help me with this? Thank you.

Answer 1