Suppose there are two monopoly firms, producing output Q1 and Q2 with a constant MC = 2. Suppose that demand for Firm 1 and Firm 2 is respectively given by P1 = 10 – 2Q1 P2 = 6 – 2Q2 The corresponding Marginal Revenue (MR) curves are given by: MR1 = 10 – 4 Q1 MR2 = 6 – 4Q2 %3D %3D 1) Compute the profit maximizing Quantities Q1 and Q2 for these firms. Compute MR for each firm and show that at these Quantities, MR1 = MR2. Briefly explain why? 2) Compute the two ratios: Q1/(Q1+Q2) and Q2/(Q1+Q2). 3) Using the quantities in 1, compute TR (Total revenue) for each firm and also TC for each firm.
Suppose there are two monopoly firms, producing output Q1 and Q2 with a constant MC = 2. Suppose that demand for Firm 1 and Firm 2 is respectively given by P1 = 10 – 2Q1 P2 = 6 – 2Q2 The corresponding Marginal Revenue (MR) curves are given by: MR1 = 10 – 4 Q1 MR2 = 6 – 4Q2 %3D %3D 1) Compute the profit maximizing Quantities Q1 and Q2 for these firms. Compute MR for each firm and show that at these Quantities, MR1 = MR2. Briefly explain why? 2) Compute the two ratios: Q1/(Q1+Q2) and Q2/(Q1+Q2). 3) Using the quantities in 1, compute TR (Total revenue) for each firm and also TC for each firm.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.6P
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Transcribed Image Text:Suppose there are two monopoly firms,
producing output Q1 and Q2 with a constant
MC = 2. Suppose that demand for Firm 1 and
Firm 2 is respectively given by
P1 = 10 – 2Q1
P2 = 6 – 2Q2
The corresponding Marginal Revenue (MR)
curves are given by:
MR1 = 10 – 4 Q1
MR2 = 6 – 4Q2
1) Compute the profit maximizing Quantities
Q1 and Q2 for these firms. Compute MR for
each firm and show that at these Quantities,
MR1 = MR2. Briefly explain why?
2) Compute the two ratios: Q1/(Q1+Q2) and
Q2/(Q1+Q2).
3) Using the quantities in 1, compute TR (Total
revenue) for each firm and also TC for each
firm.
4) Suppose instead of producing the
quantities Q1 and Q2 from 1, each firm
produced half of (Q1+Q2 from 1). Compute
the MR for each firm if they produced half the
total output. Explain why half the total output
cannot be an equilibrium outcome.
5) Using the axis below, graph the MR curves
and the equilibrium outcome.
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