Stackelberg duopolists,Firm 1 and Firm 2,face inverse market demand Both have marginal cost, Firm 1 produces output Q₁ = 15 and Firm 2 produces output Q₂ = 7.5.What is the price level in this market and what is the level of industry profits (i.e.the sum of Firm 1 and Firm 2's profits)?

Question

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First, we need to find the market price. Using the inverse demand function: P = 110 - 8(Q₁ + Q₂) P = 110 - 8(15 + 7.5) P = 110 - 8(22.5) P = 110 - 180 P = 27.5 Next, we can calculate the profits of each firm. For Firm 1: π1 = (P - MC1)Q₁ π1 = (27.5 - 11)15 π1 = 247.5 For Firm 2: π2 = (P - MC2)Q₂ π2 = (27.5 - 11)7.5 π2 = 123.75 The total industry profits are the sum of each firm's profits: Industry Profits = π1 + π2 Industry Profits = 247.5 + 123.75 Industry Profits = 371.25 Therefore, the best choice is A, with a market price of 27.5 and industry profits of 168.75.

Stackelberg Duopolists,Firm 1 and Firm 2,face Inverse Market Demand