Homework Answers
Answer 1. a. Monopoly produces where MC=MR
Q=500-20P
P= 25-0.05Q
TR= 25Q-0.05Q^2
MR=dTR/dQ= 25-0.1Q
MC=5
So
5=25-0.1Q
0.1Q= 20
Q*= 200
b. In Bertrand competition with two firms having same MC.
P=MC=5
P=25-0.05Q
5= 25-0.05Q
Q**=20/0.05
Q**=400
Market output= 400
C. MC firm 1=7 and MC firm 2=5.
Since firms set P=MC im Bertrand competition.
P1=7, P2= 5
P1>P2
Firm 1 will not be able to sustain if Price is below 7.
And firm 2 will be able to sell all it's product in the market if it prices it's vood slightly below $7. So as not to let firm 1 enter.
So Price will be $6.9
At this price only firm 2 can sell.
6.9= 25-0.05Q
Q***=18.1/0.05
Q***= 362
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