Question: Two firms produce high-quality zurbs. Total market demand is given by P = 50 - Q.
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Two firms produce high-quality zurbs. Total market demand is given by P = 50 - Q. Firm 1 produces X units, and Firm 2 produces 7 units so that Q = X + Y. It can be seen that one firm's choice influences the other firm's profit because it influence the market price and thereby profit.
The marginal benefit of a firm is given by its marginal revenue
MR1=50−Y−2XMR1=50−Y−2X, and MR2=50−X−2YMR2=50−X−2Y
Similar to any other firm with market power, these two firms will find their profit-maximizing choice by setting MR = MC. The marginal cost for each firm is equal to MC = 26.0.
How many units will firm 1 produce?
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