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Two firms compete in a market to sell a homogeneous product with inverse demand function P = 600...

Question:

Two firms compete in a market to sell a homogeneous product with inverse demand function P = 600 - 3Q. Each firm produces at a constant marginal cost of $300 and has no fixed costs. Use this information to compare the output levels and profits in settings characterized by Cournot, Stackelberg, Bertrand, and collusive behavior.

COURNOT OUTCOME

a) What is the Cournot output for each firm?
b) What are the Cournot profits for each firm?

STACKELBERG OUTCOME

a) What is the Stackelberg leader output?
b) What is the Stackelberg follower output?
c) What are the Stackelberg leader's profits?
d) What are the Stackelberg follower's profits?

BERTRAND OUTCOME

a) What is the Bertrand market-level output?
b) What are the Bertrand profits for each firm?

COLLUSIVE OUTCOME

a) What is the collusive market-level output?
b) What are the collusive industry-level profits?

Duopoly Models:

A duopoly is basically like having two monopolies for the same product. In other words, two dominant companies sell one thing.

Answer and Explanation: 1

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COURNOT OUTCOME:

a) The inverse demand function is given as {eq}P = 600 - 3Q {/eq}

Where the total market output Q is equal to the sum of outputs...

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Monopolistic Competition: Definition, Theory, Characteristics & Examples

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Chapter 3 / Lesson 56
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Learn the monopolistic competition definition with examples. Study monopolistic competition vs. perfect competition and other market types to learn the differences.


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