Consider a market with two firms (Firm 1 and Firm 2), which produce an identical good.
Both firms have the same constant marginal cost: MC = m = 40.
The demand in this market is given by:
Q
= 100.25pp = 400 - 4Q
Let p₁, 9₁, and π₁ denote the price charged by firm 1, the quantity firm 1 produces and sells, and
firm 1's profits, respectively. Analogously, let p2, 92, and T₂ denote the price, quantity, and
profits of firm 2.
When appropriate, assume the firms split total quantity and profits evenly.
Question 01
Assume Firm 1 and Firm 2 compete by choosing prices simultaneously (Bertrand oligopoly with
identical products). Find the price, quantity, and profit of each firm in equilibrium. Which of the
following alternatives is correct?
(a) P₁ = P₂ = $220, q₁ q2 = 22.5, and ₁ = 7₂ = $4,050
(b) p₁ = $160, P2 = $220, q1 = 60, q2 = 0, ₁ = $7,200, and ₂ = $0
(c) P₁ P2 = $160, q1
q2 = 30, and ₁ = 7₂ = $3,600
(d) P₁
P2 = $40, q₁
q2 = 45, and ₁ = ₂ = $0
Question 02
Assume Firm 1 and Firm 2 compete by choosing quantities simultaneously (Cournot oligopoly
with identical products). Find the price, quantity, and profit of each firm in equilibrium. Which of
the following alternatives is correct?
(a) P₁ P2 = $220, q1 q2 = 22.5, and ₁ = 7₂ = $4,050
(b) P₁ = $160, p2 = $220, 91
(c) P₁ P₂ = $160, q₁
(d) P₁ = P₂ = $40, q₁
60,92 = 0, ₁ = $7,200, and ₂
q2 = 30, and ₁ = ₂ = $3,600
q2 = 45, and π₁ = π₂ = $0
= $0