Assignment-1

Intermediate Microeconomics
This assignment is graded. The solutions to the following problems should be submitted to
divyajain.fbss@mriu.edu.in on May 12, 2023 10 pm IST.)

Q1. A Cournot Oligopoly (duopoly) exists where the market demand function facing each of
the two firms is
P = 4 - (Q1 + Q2) , where Q = (Q1 + Q2) and the MC facing each firm is zero. 
If the two firms form a cartel, what is the market quantity (Q) and market price (P) that
will prevail?

Q2. Consider a market in which price and total quantity demanded are related as follows:
P = 40 - Q. For two firms producing with identical marginal costs of 10, the Bertrand-
Nash equilibrium quantities will be:

Q3. Consider a market in which price and total quantity demanded are related as follows:
P = 40 - Q. For two firms producing with identical marginal costs of 10, the Cournot-
Nash equilibrium quantities will be:

Q4. The following data are known by both firms (and describe the industry situation:
1) p = 140 - (Q1+Q2) (industry demand)
2) TC1 = 20Q1 (total cost of firm 1),
3) TC2 = 20Q2 (total cost of firm 2).
Firms compete strategically. In order to maximize their profits, they guess and take into
account what the competitor does.
a) Compute the marginal revenues for both firms
b) Compute the profit maximizing outputs for both firms
c) Compute the profit maximizing values for both firms

Q5. Assume two firms, where Firm One is the leader and produces Q1 units of a homogeneous
good. Firm Two is the follower, and produces Q2 units of the good. The inverse demand
function is given by P = 100 – Q, where Q = Q1 + Q2. The costs of production are given by the
cost function: C(Q) = 10Q.
a) Compute the marginal revenues for both firms
b) Compute the profit maximizing outputs for both firms
c) Compute the profit maximizing values for both firms