Suppose that an industry consists of two firms producing an identical product in which there is no brand loyalty by consumers. The inverse market demand for the combined output of both firms is P = 5 !0.001 (Q_A + Q_B). The marginal cost of production by firm A and firm B are $2 and $1, respectively. Firm A produces:

Question

Quizplus · Accepted Answer

Given the inverse market demand P = 5 - 0.001(Q_A + Q_B) and the marginal costs for firm A ($2) and firm B ($1), we can find the quantity produced by firm A by setting its marginal revenue equal to its marginal cost and solving for Q_A, considering the Cournot competition model where firms decide quantities to maximize their profits. The correct calculation involves deriving the reaction functions for both firms and solving them simultaneously. The choice provided directly as the answer indicates a specific calculation based on these principles, leading to firm A producing 667 units.

Suppose That an Industry Consists of Two Firms Producing an Identical