Question

Suppose a drug manufacturer sells a new drug for twitchy feet. The market demand curve for the drug is P=110-2Q, where P is the market price and Q is the market quantity. Also suppose the marginal cost for manufacturing is 10/ unit.

A) Assuming the firm is an unregulated monopolist, what quantity and price should the firm offer?

Quantity =.

Price = $

B) Now suppose, the manufacturer has identified two separate classifications of cusC) Suppose the monopoly has broken up into two separate companies. The demand function is still P=110-2Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=10). Also assume they are Cournot duopolists. Determine the quantity and price of each firm.

Quantity Market 1= .

Price in Market 1 =$.

Quantity in Market 2 =.

Price in Market 2 = $

C) Suppose the monopoly has broken up into two separate companies. The demand function is still P=110-2Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=10). Also assume they are Cournot duopolists. Determine the quantity and price of each firm.

Quantity for firm 1: .

Quantity for firm 2: .

Price in each market: $

D) Now assume these firms are acting like Bertrand duopolists. What quantity will each firm produce and what will be the market price?

Quantity for firm 1 and 2:

Market price: $

E) Assume that firm 1 is acting as a Stackelberg leader and firm 2 is acting as the Stackelberg follower. The demand function is still P=110-2Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=10). Determine:

(a) the demand function faced by the leader: .

(b) the quantity produced by the leader: .

(c) the quantity produced by the follower: and

(d) market price:

Answer 1