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.Suppose Kate enters the market first and chooses her output before Alice.Given market demand,what is the market price per cubic yard?

Question

Quizplus · Accepted Answer

The correct answer is B. The market price per cubic yard is $85. This is because Kate, as the first entrant, will choose to produce the quantity that maximizes her profit, given the market demand and Alice's expected output. Alice, as the second entrant, will then choose to produce the quantity that maximizes her profit, given the market demand and Kate's output. The resulting equilibrium will be a Nash equilibrium, in which neither firm can improve its profit by changing its output, given the output of the other firm.

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