Kate and Alice are small-town ready-mix concrete duopolists.The market demand function is Q^d = 20,000 - 200P,where P is the price of a cubic yard of concrete and Q^d is the number of cubic yards demanded per year.Marginal cost is $80 per cubic yard.The Cournot model describes the competition in this market.What is the amount of the deadweight loss?

Question

Quizplus · Accepted Answer

In the Cournot model, firms choose quantities to maximize their profits given the quantities chosen by other firms. The deadweight loss in a duopoly like this arises because the firms produce less and charge more than would be the case in a perfectly competitive market, leading to a loss of economic efficiency. The calculation of the deadweight loss involves comparing the equilibrium outcomes under Cournot competition with those under perfect competition. Given the complexity of the Cournot model and the specific market demand and cost structure provided, the deadweight loss can be calculated using economic theory and formulas related to the Cournot equilibrium and the welfare losses associated with monopolistic competition. The correct answer, D) $4,444.44, is derived from such calculations, indicating the economic inefficiency generated by the duopolistic competition between Kate and Alice.

Kate and Alice Are Small-Town Ready-Mix Concrete Duopolists