Question
Firm A and Firm B are the only producers of Coffee in the market. The total cost functions for each firm are given as follow:
Firm A and Firm B are the only producers of Coffee in the market. The total cost functions for each firm are given as follow: TCF = QF^2 TCA = 120QA + 0.5QA^2 The market demand function of Coffee is given as follow: Q = 600 ? P
i. Calculate the profit for each firm under Cournot equilibrium. (8 marks)
ii. After Christmas the demand for Coffee decreased sharply that the market demand function becomes: Q* = 450 ? 1.5P In order to survive the two firms merged into a single firm and becomes monopoly in the market. What is the profit maximizing output level and price for Coffee now?
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Managerial Economics Theory Applications and Cases
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
8th edition
978-0393124491, 393124495, 978-0039391277, 393912779, 978-0393912777
