Consider a coastal economy served by two (2) fishing firms. There is only one type of fish that is harvested. All firms send their boats out at the same time and they compete on quantity. Demand given by P = 200 - Q and each firm has a constant marginal cost of $20. There are no fixed costs.

a. Using the appropriate model, what will be an individual firm's quantities and profits?

b. Suppose that Firm 1 adopts a new production technology that reduces his marginal cost of production from $20 to $10. Firm 2 does not adopt the technology and continues to have a marginal cost of $20. What will be the new quantity and profit outcomes? How has the technology affected the relative position of Firm 1 and Firm 2 in the market?

Answer rating: 100% (QA)

a Individual Firms Quantities and Profits in the Competitive Market Model This scenario represents a perfectly competitive market with two firms oligo... View the full answer