Question

The inverse demand function for fuzzy dice is p = 20 - q. Each firm in...

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.

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Homework Answers

Answer #1

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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