Question
Consider a duopoly.Market demand is given by: P = 90 - Q, and each firm has constant AC=MC=18. A.Suppose the firms operate as Cournot duopolists.
Consider a duopoly.Market demand is given by: P = 90 - Q, and each firm has constant AC=MC=18.
A.Suppose the firms operate as Cournot duopolists. Derivethe Cournot equilibrium firm outputs, market output, market price and profit to each firm.
B.Suppose instead, the firms operate as Bertrand duopolists.What is the Bertrand equilibrium price, market output, and profit to each firm?
C.Compute the value of the Lerner index for each of the two outcomes (in Part A and Part B) above.
D.Without performing any calculations, what happens to the value of the Lerner index in each case (Cournot and Bertrand) as the number of symmetric firms in the oligopoly increases?Explain.
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