The inverse demand function for fuzzy dice is p = 20 - q. Each
firm in this industry produces at a constant
marginal cost of $8. Which of the following sets of statements is
completely true?
a. Monopoly output is 6. Cournot duopoly total output is 8.
Perfectly competitive output is
16.
b. Monopoly output is 8. Cournot duopoly total output is 8.
Perfectly competitive output is
12.
c. Monopoly output is 6. Cournot duopoly total output is 6.
Perfectly competitive output is
12.
d. Monopoly output is 6. Cournot duopoly total output is 8.
Perfectly competitive output is
12.
e. Monopoly output is 6. Cournot duopoly total output is 8.
Perfectly competitive output is
16.
We have the following information
Inverse demand function = P = 20 – q
Marginal cost (MC) = $8
In perfect competition equilibrium is at the point where the price is equal to the MC
20 – q = 8
q = 12
In Monopoly, the equilibrium is at the point where the marginal revenue (MR) is equal to the MC
Total Revenue (TR) = P × q = (20 – q) × q = 20q – q2
MR = ?TR/?q = 20 – 2q
MR = MC
20 – 2q = 8
2q = 12
q = 6
So, Monopoly output is 6. Cournot duopoly total output is 8. Perfectly competitive output is 12.
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