Scenario 12.1:
Suppose mountain spring water can be produced at no cost and that the demand and marginal revenue curves for mountain spring water are given as follows:
Q = 6000 - 5P MR = 1200 - 0.4Q
-Refer to Scenario 12.1. What will be the price in the long run if the industry is a Cournot duopoly?
A) $400
B) $600
C) $800
D) $900
E) Competition will drive the price to zero.

Question

Quizplus · Accepted Answer

In a Cournot duopoly, firms choose quantities to maximize profit. The equilibrium price is determined by the intersection of the aggregate quantity produced by both firms and the demand curve. Solving the Cournot equilibrium for the given demand and marginal revenue functions results in a price of $400.

Scenario 12.1: Suppose Mountain Spring Water Can Be Produced at No Cost