2. Cournot numerical

Consider the following demand and cost functions:

[1] P = 2,500 - 2Q

[2] TC = 20,000 + 10Q

Questions:

(a) Calculate equilibrium market price, total market quantity, firms' quantity, and firms' profits under: (a) monopoly; and (b) Cournot duopoly.

(b) Under new regulatory mandated cleanup costs, each firm has to incur a marginal cleanup costs of $5 per unit produced. Calculate the new equilibrium market price, total market quantity, firms' quantity, and firms' profits under: (a) monopoly; and (b) Cournot duopoly.

(c) What are the percentage changes in price, quantity and firms' profits going from the initial equilibrium to the post-regulatory equilibrium? [Measure percentage change as: (new value-old value) divided by (old value) multiplied by 100.]

Cournot Quantity Competition Production of copier/printer paper O . Market demand for paper: P = A - BQ = A - B(q1+q2) o A is intercept (e.g., 500) o B is slope (e.g., 1.25) o q1 and q2 are the firms' outputs (production quantities) . Two firms have common MC=c (e.g., $25/unit of production) . We only discuss the concepts and final equilibrium . We will also go over companion set of slides with details and derivations on Cournot competition - slides BM2