The following question relate to a duopoly market where the industry demand curve is P = 1000 - Q.
The total cost function for each firm is same and is given by C(Q)=16Q where Q is the output produced by the firm.
This means that MC = 16 for each firm.
(a) If the two firms are engaged in Cournot competition, determine the price (P), quantity sold by each firm (Q_1, Q_2), total quantity sold (Q) in the market and profit earned by each firm in this market.
(b) Next assume instead that the two firms are engaged in Bertrand competition, determine the price (P), quantity sold by each firm (Q_1, Q_2), total quantity sold (Q) in the market and profit earned by each firm in this market.
(c) Now assume that the two firms collude and behave as a monopoly (sharing the market equally), determine the price (P), quantity sold by each firm (Q_1, Q_2), total quantity sold (Q) in the market and profit earned by each firm in this market.
(d) What would be the price and the total quantity sold if the market consists of large number of firms with identical total cost and MC as given earlier when the market is in long run equilibrium?
Also what is the profit for each firm in this case?
(e) (BONUS) If the two firms are engaged in Stackelberg competition with Firm 1 as leader and Firm 2 as follower, determine the price (P), quantity sold by each firm (Q_1, Q_2), total quantity sold (Q) in the market and profit earned by each firm in this market.