Wednesday

April 16, 2014

April 16, 2014

Posted by **Anonymous** on Tuesday, November 24, 2009 at 8:28pm.

a) What is the profit function? Find the profit-maximizing choice of y for X.

Profit = Y(P – AC) = Y(20 – 0.2Y – 2) = Y(18 – 0.2Y) = 18Y – 0.2Y^2

MC = 2

MR = 20 – 0.4Y

2 = 20 – 0.4Y

0.4Y = 20 – 2

Y = 45

b) What price does X get per gallon of soda if he produces the profit-maximizing quantity? How much profit does he make?

P = 20 – 0.2(45) = 11

Profit = 18(45) – 0.2(45)^2 = 405

c) Suppose that X’s neighbour, Z, finds a soda source that produces soda that is just as good as X’s soda, but it costs Z $6 a bottle to get his soda out of the ground and bottle it. Total market demand for soda remains as before. Suppose that X and Z each believe that the other’s quantity decision is independent of his own. What is the Cournot equilibrium output for Z? What is the price in the Cournot equilibrium?

I don’t know how to solve for this question.

- Microeconomics - Cournot -
**economyst**, Wednesday, November 25, 2009 at 9:27ama) I agree

b) I agree

c) Cournot models can be tricky beasts. But in this example, I believe the soulution is easy because 1) both firms have flat MC curves and MCx < MCz. I believe firm X, in the end, will drive P down to 6 and Z will produced nothing. (I wish I had more time to work the math, but I dont).

Lotsa luck.

**Related Questions**

English - e.g. I have a soda to recommend. ( What is 'soda'? Are both Coke and ...

Microeconomics: Budjet Constraint - You have decided to eat sushi for lunch and ...

Statistics - A machine is used to fill soda bottles in a factory. The bottles ...

college math - The ratio of soda to diet soda in Bill's Supermarket is 8 to 9. ...

Math - Soda comes in packs of 6. Candy comes in 4 bags per pack. What is the ...

SCIENCE - what does a soda CAN do? what materials are used in making a soda CAN ...

Science - what does a soda can do? what materials are used in making a soda can ...

Physical Science - 1. Which is faster,160 miles an hour or 300 inches a second? ...

science ( soda can) - Why does a can of soda left in the car on a hot summer day...

Chemistry - In the space below, show your work for determining the volume, mass...