1 Firm A and firm B sell identical Soma to a market that has inverse demandp = 120 – Qwhere Q is total market supply. Suppose firm A and firm B each has a constant marginal costof production of ca and câ per unit of Soma respectively (ca < 60, CB < 60). The two firms areengaged in a Cournot competition.1. What are the equilibrium quantities and profits in terms of cĄ and cg?From now on, suppose ca = cB = 48. You have an invention that will lower the marginal cost ofproducing Soma to $24 per unit and you intend to sell this invention to firm A only. If firm Adeclines your offer, it will continue to earn the profits identified in part (1).2. You intend to offer the invention to firm A for a fixed fee F. If firm A declines, you willdestroy the invention. What fee should you charge firm A to maximize your profit?3. You intend to offer the invention to firm A for a fixed fee F and a per-unit subsidy r topromote your technology. That is, firm A will pay you F but for every unit of Soma theyproduce using your invention, you’ll give them r dollars. If r = 36, what fixed price F shouldyou charge firm A? Are you better off from doing this than in part (2)?4. Following part 3, but the marginal cost of Soma using the your invention is only $6 (insteadof $24). Now, if r = 36, what fee, F, should you charge firm A?

Cournot equilibrium price and quantity quantity produced by firm A=q1 quantity produced by firm B=q2…

Firm A and firm B sell identical Soma to a market that has inverse demand p= 120 – Q where Q is total market supply. Suppose firm A and firm B each has a constant marginal cost of production of CA and cB per unit of Soma respectively (CA S 60, CB < 60). The two firms are engaged in a Cournot competition.

Firm A and firm B sell identical Soma to a market that has inverse demand p= 120 – Q where Q is total market supply. Suppose firm A and firm B each has a constant marginal cost of production of CA and cB per unit of Soma respectively (CA S 60, CB < 60). The two firms are engaged in a Cournot competition.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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