1. Suppose we have a duopoly in the production of mineral spring water. Each firm has the same cost structure where MC(Q) = 10. The market demand for mineral spring water is given by:
P = 70 - Q/50
Each firm, wishing to maximize profits, assumes that the other firm will not change his current level of production. What will be the final level of production for the market (after a Cournot equilibrium is reached)? How much is produced by each firm? How much profit is earned by each firm?
2. If we had efficiency in the duopoly described in question above, what would the market quantity and price be? How does this compare to your answer for the question above?