Suppose there are two firms (called firm A and firm B) that compete ala Cournot. Market demand is

=1101/2(+)

Let marginal costs be

=$10

and

=$10

hence, costs are

()=10

1.Choose the best option. For a monopolist, what is the marginal revenue,(), curve?

• ()=1001/2
• ()=110
• ()=1101/2
• ()=100

2.Choose the best option. Suppose we set=0, What is firm A's optimal output,, that maximizes profits,?

• 150
• 0
• 75
• 100

3.Choose the best option. Suppose we set=0. What is firm A's optimal profit,?

• $5,000
• $7,500
• $10,000
• $2,500

4.Choose the best option. Suppose we set=200. What is firm A's optimal output,?

• 75
• 100
• 150
• 0

5.Choose the best option. Using what you know from the set up above, how much will firm A reduce its output for each one unit increase in output by firm B?

• 1/2
• 0
• 1
• 1/3

6.Choose the best option. What is firm A's reaction function?

Hint:The reaction function is firm A's best response to firm B's choice of output.

• =1101/2
• =1001/2
• =100
• =110

7. Choose the best option. What is firm B's reaction function?

Hint:The reaction function is firm B's best response to firm A's choice of output.

• =1101/2
• =100
• =110
• =1001/2

8. Choose the best option. At theCournot Equilibrium, how much output will each firm produce?

• 33 AND 1/3
• 75
• 66 AND 2/3
• 50

9.Choose the best option. What are the profits for each firm,and, at theCournot Equilibrium?

• $1,111
• $5,000
• $2,222
• $2,500