Discussion:
North Bend currently has one McDonald's fast-food franchise. Demand for hamburgers in North Bend is given by Q = 300 - 10P. Any McDonald's franchise has costs of C = 70 + 2Q for producing Q hamburgers.
a. What is the monopolist's price, quantity and profits?
b. A second McDonald's franchise moves into North Bend and both behave as Cournot duopolists. Calculate the price, and the quantities produced by each franchise.
c. How does price and total quantity in Cournot (part b) compare to the numbers you calculated in a monopoly (part a)?
d. Calculate the profit of the original McDonald's. Compare the Cournot profit to that in part a.
Consider the orginal MacDonald's again. Suppose it knows that a second franchise is about to enter and it decides to move ahead as the Stackelberg leader.
a. What will be the price in the market, and what quantity will each franchise produce?
b. What is the profit for each franchise?
c. Compare price and quantities in a Stacklberg duopoly to the Cournot duopoly case above.