Sub: Economics

Topic: Micro Economics

Question: Calculate industries Cournot equilibrium price, quantity and profit. Show the effects of merge between two firms given the cost and demand function.

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(i) What is the industry equilibrium (price, output and profits) if the firms have Cournot beliefs? (ii) Would it pay for Firm 1 and Firm 2 to merge, if, after the merger, the remaining firm plays Cournot? (Hint: carefully consider if the merged firm would produce using both original firms’ plants or just those of one firm.) (iii) What happens if their costs are C(q) = 18q instead?

Solution:
(i)C(q)=18+q^2 P=150 – Q=150 – (q1+q2+q3) MC1=18+2q1 MC2=18+2q2 MC2=18+2q2 TR1= 150q1 - q1^2 – q2*q1 – q3*q1 TR2= 150q2 – q2^2 – q2*q1 – q3*q2 TR3= 150q3 – q3^2 – q2*q3 – q3*q1 MR1=150 – 2*q1 – q2 – q3 MR2=150 – 2*q2 – q1– q3 MR3=150 – 2*q3 – q2 – q1
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Sub: Economics

Topic: Micro Economics

On equating MR1=MC1 and MR2=MC2 and MR3=MC3 we get q1=q2=q3=22 P= 150 – (q1+q2+q3) = 84 Profits of each firm= TR – TC=1848 – 880= 968 If you like to download the complete solution , visit our solution library by copying to your browser the following link
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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for
submitting the same in lieu of your academic submissions for grades.