New Enroll in our GIC Finance Online Course Here!

    Register

    Question

    Suppose that the (inverse) market demand for good A is

    given by P = 400 - 2Q  Where Q is total industry output. There are two firms that produce A. Each firm has a constant marginal cost of production equal to Rs.40 and they are competing in quantities. That is, they each choose production levels simultaneously. Calculate profit maximising total quantity
    A 90 Correct Answer Incorrect Answer
    B 100 Correct Answer Incorrect Answer
    C 110 Correct Answer Incorrect Answer
    D 120 Correct Answer Incorrect Answer

    Solution

      Equating both BR functions, q2 = 90 – 0.5 (90 - 0.5 q2) q2 = 90 – 45 + 0.25 q2 0.75 q2 = 45 q2 = 60 Also, q1 = 90 – 0.5 (60) = 90 – 30 = 60 Q = q1 + q2 = 120

    Practice Next