Question
Consider two firms, Intel and Athlon, who supply the market for computer chips. Intels chips are perfect substitutes for Athlons chips and vice versa. Market
Consider two firms, Intel and Athlon, who supply the market for computer chips. Intels chips are perfect substitutes for Athlons chips and vice versa. Market demand for chips is estimated to be P = 120 20Q, where Q is the total quantity (in millions) of chips bought. Both firms face a constant marginal cost equal to 20 per unit of output. We assume that Intel and Athlon independently choose what quantity of output to produce. The market price is then assumed to adjust to clear the market of the total quantity of chips produced. a. What quantity of output will Intel produce? What quantity of output will Athlon produce? b. What will be the equilibrium price of computer chips? How much profit will each firm make?
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