Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 – Q. The marginal cost to produce this new drink is $3. Answer the following questions:

1. What price would this new drink sell for if it is sold in a perfectly competitive market?
2. What is the monopoly price of this new drink?
3. What will be the price of this new drink if the industry is a Cournot duopoly?
4. What will be the price of this new drink if the industry is a Stackelberg duopoly?
5. What will be the price of this new drink if the industry is a Bertrand duopoly?

Answer rating: 100% (QA)

1 Under perfect competition model the profit maximising level of otuput is set where P MC MC 3 P 30 ... View the full answer