Question
1)Let's return to the two small-town driveway paving companies, Asphalt Inc. and Blacktop Bros. The inverse demand curve for paving services is P = 1,600
1)Let's return to the two small-town driveway paving companies, Asphalt Inc. and Blacktop Bros. The inverse demand curve for paving services is P = 1,600 - 20Q, where quantity is measured in pave jobs per month and price is measured in dollars per job. Assume Asphalt Inc. has a marginal cost of $400 per driveway, and Blacktop Bros. has a marginal cost of $200.
a.Determine each firm's reaction curve.
b.How many driveways will each firm pave in Cournot equilibrium?
c.What will the market price for a paving job be?
d.How much profit does each firm earn?
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