Question
The market demand curve for mineral water is given by P = 15 Q. If there are two firms that produce mineral water, each with
The market demand curve for mineral water is given by P = 15 Q. If there are two firms that produce mineral water, each with a constant marginal cost of 3 per unit, find the profit maximizing quantities, prices, and profits for each situation. (a) Shared monopoly: firms act as one monopoly and split the production and profits in half. (b) Cournot: firms simultaneously choose quantity. (c) Bertrand: firms simultaneously choose price. (d) Stackelberg-Cournot: Firm 1 is the Stackelberg leader. Both firms choose quantity. (e) Stackelberg-Bertrand: Firm 1 is the Stackelberg leader. Both firms choose price. (f) How would the answers to parts (6b)-(6e) change if the second firm has marginal costs of zero?
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