There is a duopoly (two-firm control) over the local market…
There is a duopoly (two-firm control) over the local market for widgets. The marginal cost of production to each firm is given by the equation MC = 2q. Average costs are given by the equation AC = 30 – 2q. Since the market for widgets is not perfectly competitive, marginal revenue decreases with the quantity of widgets sold: MR0 = 20 – 2q. Finally, market demand is given by the equation q0D = 20 – p. How many widgets does each firm produce? Set MC = MR0. q0* = . What price do they charge? p0* = $. Profit is $. Your number may be negative, in which case you should insert a single hyphen, “-” (without the quotes), before the number. If profits are positive, a new firm enters the market. In this case, marginal revenue per firm decreases to MR1 = 16 – 2q and demand decreases to q1D = 16 – p. On the other hand, if profits are negative, a firm exits the market and leaves the other with a monopoly. Marginal revenue for the monopolist increases to MR1 = 24 – 2q and demand increases to q1D = 24 – p. Now set MC = MR1 to find the new number of widgets sold by each firm: q1* = . What price do they charge? p1* = $. Profit is $. Is the market stable, in the sense that no existing firms want to exit and no potential firms want to enter?