Suppose there is a small town with only two firms, Firm A and Firm B, that produce identical goods using identical production processes. Each firm has a constant marginal cost of $10 per unit and faces a market demand curve given by P = 50 - Q, where P is the price per unit of the good and Q is the total quantity of the good produced by both firms.

1. What is the equilibrium price and quantity in this market?

2. Now suppose that Firm A incurs an unexpected cost of $5 per unit due to a production malfunction. How does this affect the market equilibrium?

3. Firm B decides to take advantage of this opportunity and increases its production by 5 units. How does this affect the market equilibrium?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 In this market the equilibrium price ... View the full answer