Firm A and Firm B are the only producers of Coffee in the market. The total cost functions for each firm are given as follow: TCF = QF^2 TCA = 120QA + 0.5QA^2 The market demand function of Coffee is given as follow: Q = 600 ? P

i. Calculate the profit for each firm under Cournot equilibrium. (8 marks)

ii. After Christmas the demand for Coffee decreased sharply that the market demand function becomes: Q* = 450 ? 1.5P In order to survive the two firms merged into a single firm and becomes monopoly in the market. What is the profit maximizing output level and price for Coffee now?

Answer rating: 100% (QA)

To find the profit for each firm under Cournot equilibrium we first need to determine the quantities ... View the full answer