6. Cournot competition Consider a town in which only two residents, Albert and S

Question

6. Cournot competition Consider a town in which only two residents, Albert and Stasia, own wells that produce water safe for drinking. Albert and Stasia can pump and sell as much water as they want at no cost. Assume that outside water cannot be transported into the town for sale. The following questions will walk you through how to compute the Cournot quantity competition outcome for these duopolists Consider the market demand curve for water and the marginal cost for collecting water on the following graph. Suppose Albert believes that Stasia is going to collect 12 gallons of water to sell. On the graph, use the purple points (diamond symbols) to plot the demand curve (D1) Albert faces; then use the red points (cross symbols) to plot the marginal revenue curve (MR1) Albert faces. Finally, use the black point (X symbol) to indicate the profit-maximizing price and quantity (Profit Max 1) in this case. Dashed drop lines will automatically extend to both axes PRICE (Dollars per gallonl 12 D1 Market Demand 10 MR1 Profit Max 1 4 MC 4 20 24 QUANTITY (Gallons of water Help Clear All

Explanation / Answer

12 and 8

false

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