Question 4: (10 points)
Consider identical firms competing in a Cournot oligopoly, with cost functions: C(q) = 10q, and
corresponding marginal costs of: MC(q) = 10. The market elasticity of demand is: EM = -2.
(note: NOT the firmâs elasticity of demand, which is EF!)
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a) Suppose you are a monopolist. Solve for the profit-maximizing price. (hint: a monopoly is
Cournot competition with only one firm, i.e. where N=1).
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b) Now suppose another, identical firm, enters the market. Solve for the new profit maximizing
price.
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c) As more firms enter, the price falls. How many firms must be in the market for the price
to fall below: P = $11? (hint: you can solve this by trial-and-error, i.e. testing a certain
number of firms, or by solving directly for N. Try solving for N directly. Also, ð must be
an integer.)
Answers
Status NEW
Posted 03 May 2017 05:05 AM
My Price 6.00
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