The industry demand function for watermelon is given as follows: Q = 60- 0.2P Th
ID: 1208597 • Letter: T
Question
The industry demand function for watermelon is given as follows: Q = 60- 0.2P There are only two firms which produce watermelon: Firm Y and Firm Z. Both firms have a marginal cost of $60 and their fixed costs are zero. Their marginal revenue functions are given as follows: MR_Y= 300 -10Q_y-5Q_z MR_Z = 300 - 10Q_Z-5Q_Y where MR_Y is the marginal revenue of Firm Y, MR_Z is marginal revenue of Firm Z, Q_Y is the output of Firm Y, Q_z is the output of FirmZ. What is the market output, price and total profit under the Bertrand equilibrium? If the two firms collude and form a monopoly, what would be the market output level, price and total profit? (Note: Marginal revenue function: MR = 300 - 10Q)Explanation / Answer
1) Under Bertrand competition P=MC so P=$60
Q = 60-0.2*60 = 48
Profit = 60*48 - 60*48 = 0
2) When both collude to form monopoly then MR = MC
300 - 10Q = 60
Q = 24
P = 300-5Q = 180
Profit = 24*180 - 60*24 = $2880
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