Suppose that there are only two firms (Firm A and Firm B) in the market for decorative lampshades. Let the inverse demand function and the total cost function be given by: P = 50 –Q and TC = 2Q
Assume that Firm A and Firm B sell identical lampshades. The firms compete with each other bychoosing the price at which they sell their products. Firms set their prices simultaneously.
(a) How many lampshades would be produced by the entire industry? What price would be charged foreach lampshade?
(b) What is the profit earned by each firm in the industry?