Question

The table below shows the monthly demand schedule for a good in a duopoly market. The two producers in this market each faces $5,000 of fixed costs per month. There are no marginal costs.

Quantity	Price ($)	TR ($)	MR ($)
0	40	0	—
200	35	7,000	35
400	30	12,000	25
600	25	15,000	15
800	20	16,000	5
1,000	15	15,000	−5
1,200	10	12,000	−15
1,400	5	7,000	−25
1,600	0	0	−35

Instructions: Enter your answers to the nearest whole number.

a. If they evenly split the quantity a monopolist would produce, the monthly profit for each duopolist is $__.

.

b. Suppose duopolist A decides to increase production by 200 units.

Duopolist A will now produce __ units and charge a price of $__.

Duopolist B will now produce __ units and charge a price of $ __.

  The monthly profit for duopolist A is $ __ and for duopolist B $__.

Answer 1

a) Setting MR=MC

A monopolist would produce where the TR is maximized so each duopolist will produce 800/2 =400 units at a price of 20

Profit = TR-TC

400*20 - 5000 = 3000

b) When Duopolist A increases production by 200 units

Duopolist A will now produce 400+200 = 600 units and charge a price of $15

Duopolist B will now produce 400 units and charge a price of $15

The monthly profit for duopolist A is 600*15-5000 = 4000  and for duopolist, B is 400*15-5000 = 1000