Initially there is one firm in a market for cars. The firm has a linear cost function: C(q)= 2q. The market inverse demand function is given by P(Q)= 9 - Q.
i)What price will the firm charge? What quantity of cars will the firm sell? How much profit will the firm make?
Now, a second firm enters the market. The second firm has an identical cost function.
ii)What will the Cournot equilibrium output for each firm be? How much profit will each firm make in the Cournot game?
iii)Which type of market do consumers prefer: monopoly or Cournot duopoly? Why?

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The Answer of Initially there is one firm in a market for cars. The firm has a linear cost function: C(q)= 2q. The market inverse demand function is given by P(Q)= 9 - Q.
i)What price will the firm charge? What quantity of cars will the firm sell? How much profit will the firm make?
Now, a second firm enters the market. The second firm has an identical cost function.
ii)What will the Cournot equilibrium output for each firm be? How much profit will each firm make in the Cournot game?
iii)Which type of market do consumers prefer: monopoly or Cournot duopoly? Why?

Initially There Is One Firm in a Market for Cars