3. Suppose two firms are Cournot competitors with TC(qi) 400 + 50q (where q; is a...

 

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3. Suppose two firms are Cournot competitors with TC(qi) 400 + 50q (where q; is a given firm's output) and demand curve p = 1250 — Q, where Q = 9₁ +92 is total industry output (summing all firm's quantities, as usual). (a) Compute the Cournot equilibrium price, profits for each firm, and the overall consumer surplus. (b) Suppose a third firm enters (with the same cost function). Recalculate the equilibrium. Are total industry profits (summing across all firms) higher in (a) or (b)? What about consumer surplus in (a) vs. (b)? (Hint: should the equilibrium quantities of production be equal across all three firms?) 3. Suppose two firms are Cournot competitors with TC(qi) 400 + 50q (where q; is a given firm's output) and demand curve p = 1250 — Q, where Q = 9₁ +92 is total industry output (summing all firm's quantities, as usual). (a) Compute the Cournot equilibrium price, profits for each firm, and the overall consumer surplus. (b) Suppose a third firm enters (with the same cost function). Recalculate the equilibrium. Are total industry profits (summing across all firms) higher in (a) or (b)? What about consumer surplus in (a) vs. (b)? (Hint: should the equilibrium quantities of production be equal across all three firms?)

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ANSWER To compute the Cournot equilibrium and analyze the effects of a third firm entering the market lets follow the steps a Cournot Equilibrium with ... View the full answer