Question
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is
Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 – Q. The marginal cost to produce this new drink is $3. Answer the following questions:
- What price would this new drink sell for if it is sold in a perfectly competitive market?
- What is the monopoly price of this new drink?
- What will be the price of this new drink if the industry is a Cournot duopoly?
- What will be the price of this new drink if the industry is a Stackelberg duopoly?
- What will be the price of this new drink if the industry is a Bertrand duopoly?
Step by Step Solution
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1 Under perfect competition model the profit maximising level of otuput is set where P MC MC 3 P 30 ...
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Microeconomics
Authors: Douglas Bernheim, Michael Whinston
2nd edition
73375853, 978-0073375854
