The market demand for petrol is given by =339- where p is measured in cents per litreand Q is measured in millions of litres. There are two petrol retail outlets (X and Z), each hasa constant marginal cost and average cost of 147 cents per litre.
(a) If X & Z is a monopoly, calculate its profit maximizing output and market price. Illustrate your result using a suitably labelled diagram.
(b) Now assume that the market comprises a duopoly, firm X and firm Z. Find the Nash-Cournot equilibrium and illustrate your results using a suitably labelled diagram.
(c) Using the results in (a) and (b) above, and the market demand curve, illustrate the marketprice in the case of monopoly, duopoly, and perfect competition. Note: to derive thecompetitive solution assume identical firms i.e. AC = MC.