Suppose that a market for homogeneous product has demand P=200-2Q. Each firm that operates in the industry
Question:
Suppose that a market for homogeneous product has demand P=200-2Q. Each firm that operates in the industry has a constant marginal cost of production of 40, but also fixed cost of production 20 if any output is produced. The fixed cost of production is zero if output is zero however a)Suppose that a monopolist operates in this industry. What is equilibrium price and output level? Does the monopolist make positive profit?
b)Suppose that the industry is composed of two (identical) Cournot duopolists. What is the equilibrium price and output for each firm make positive profits?
c)How would your answer to (b) change if the firm were Bentrand duopolists?
d)Now, suppose that the firm behave as Stackelberg competitors. What are the equilibrium price, output level, and profit levels of the firm? Compare the answer to your previous answers. What do you notice?