2. Consider a market with inverse demand P (Q) = 100 - Q. Assume there are two different duopolies serving it. Duopoly D1 has two firms having unit costs c1 = 6 and c2 = 2, and duopoly D2 has two (symmetric) firms both having unit cost c = 4.

(a) Find the Cournot equilibrium in each duopoly.

(b) Compare the equilibrium total outputs and market prices in the two duopolies.

(c) Compare the equilibrium consumer surplus, total firm revenue, total production cost, and producer surplus (or total profit) in the two duopolies.

(d) Which of the two duopolies is preferable to consumers? To society as a whole?

Provide an economic intuition for the result.

(Hint. Calculate total production costs at the Cournot equ. and compare them).

Answer rating: 100% (QA)

a Cournot equilibrium is found by setting the marginal cost of each firm equal to the marginal reven... View the full answer