The price elasticity of demand for melocotones is constant and equal to -2.The melocotone market is controlled by two Cournot duopolists who have different cost functions.One of the duopolists has a constant marginal cost of $975 per ton and produces 70% of the total number of melocotones sold.The equilibrium price of a ton of melocotones must be
A)$1,500.
B)$750.
C)$975.
D)$3,000.
E)$2,250.

Question

Quizplus · Accepted Answer

In a Cournot duopoly with constant price elasticity of demand, the equilibrium price can be determined by the marginal cost and the market share of the firms. Given that one firm has a constant marginal cost of $975 and produces 70% of the total output, the equilibrium price must be higher than the marginal cost to ensure profitability. Among the given options, $1,500 is the most plausible equilibrium price that allows for profit above the marginal cost of $975, considering the significant market share of the firm.

The Price Elasticity of Demand for Melocotones Is Constant and Equal