Wolfe and Baker are the ONLY two firms producing door stopers because of such a small market in their area and both firms are profit maximizing. They have a marginal cost (MC) of $8 and have NO fixed cost (FC = $0). The demand for door stopers is given by function P = 32 - Q, where P is in dollars and Q is in thousands of door stopers. Because of only two producers for the market, the total quantity in the market is given Q = QM + Qn, where Qm is number of door stopers produced by Wolfe and Qn is the number of door stopers produced by Baker. BOTH Wolfe ad Baker choose what quantity to produce, so this market is a Cournot Duopoly.
A. When both firms set quantity, Wolfe's reaction funtion is (Nonexistent, Qm = 16 - 0.5Qn, Qm = 12 - 0.5Qn, Qm = 16 - 2Qn, Qm = 32 - Qn, Qm = 12 - 2Qn) and Baker's reaction function is (Nonexistent, Qn = 12 - 2Qm, Qn = 12 - 0.5Qm, Qn = 16 - 0.5Qm, Qn = 32 - Qm, Qn = 16 - 2Qn).
B. Plot On A Graph Wolfe and Baker's reaction curves. If they have no reaction curves say No reaction curve.
C. If Baker believes that Wolfe will produce a quantity of 16,000 door stopers, then Baker would produce (4,000, 8,000, 10,000, 12,000, 16,000) door stopers. If Wolfe produces 10,000 door stopers then Baker will produce (4,000, 8,000, 10,000, 12,000, 16,000).
D. On graph created above, mark the euilibrium of this market.
E. When Wolfe and Baker are Quantity Setters, the total equilibrium market quantity will be (8,000, 12,000, 16,000, 18,000, 24,000) door stopers and the equilibrium market price will be ($12, $14, $16, $20, $24). In equilibrium, Wolfe and Baker will each produce (4,000, 6,000, 8,000, 9,000, 12,000) door stopers and make a profit of ($36,000, $64,000, $72,000, $96,000, $120,000).