Question

Suppose a drug manufacturer sells a new drug for twitchy feet. The market demand curve for the drug is P=120-4Q, where P is the market price and Q is the market quantity. Also suppose the marginal cost for manufacturing is 20/ 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 customers for their twitchy feet product. Because of legal restrictions, the drug cannot be bought by one group of customers and sold to the other. The demand expression for group one is P1=160-8Q1. The demand expression for group 2 is P2=80-16Q2. MC is still 20.
Determine the price and quantity that should be offered to each group.
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=120-4Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=20.). 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=120-4Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=20). Determine:
(a) the demand function faced by the leader:
(b) the quantity produced by the leader:
(c) the quantity produced by the follower:
(d) market price:

Answer 1