Stackelberg duopolists, Firm 1 and Firm 2, face inverse market demand $P = 50 - Q$ . Both have marginal cost, $M C = \$ 2.0$ . 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)? A) P = 27.5; industry profits = 168.75 B) P = 30; industry profits = 172.6 C) P=32.5; industry profits = 180 D) P=34; industry profits = 184.2

Question

Quizplus · Accepted Answer

The total quantity $Q = Q_1 + Q_2 = 15 + 7.5 = 22.5$. The price is $P = 50 - Q = 50 - 22.5 = 27.5$. Firm 1's profit is $(27.5 - 2) \times 15 = 382.5$ and Firm 2's profit is $(27.5 - 2) \times 7.5 = 143.75$. Total industry profit is $382.5 + 143.75 = 526.25$. However, the given options seem incorrect for industry profits, but based on the price calculation, option A is the closest for price.

Stackelberg Duopolists, Firm 1 and Firm 2, Face Inverse Market P=50−QP = 50 - QP=50−Q

Stackelberg Duopolists, Firm 1 and Firm 2, Face Inverse Market $P = 50 - Q$