Question

Suppose a drug manufacturer sells a new drug for twitchy feet. The market demand curve for the drug is P=105-3Q, where P is the market price and Q is the market quantity. Also suppose the marginal cost for manufacturing is 40/ unit.

C) Suppose the monopoly has broken up into two separate companies. The demand function is still P=105-3Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=40.). 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=105-3Q as part A. The firms do not collude and the firms have identical marginal cost functions (MC1=MC2=40). 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

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