Answer to Question #139821 in Microeconomics for Isa

Question

Suppose that two firms are producers of spring water, which can be obtained at zero cost. The marginal revenue for their combined output is MR =10-2Q where MR is marginal revenue and Q is the number of litres of spring water sold by both firms per hour. If the 2 producers act according to the oligopoly model, how much will their combined output be? How much is the market price of water per litre?

Answer 1

profit maximize condition will be achieved

at MR = MC

$10-2a = 0$

$2a = 10$

$a = 5$

total revenue = price $\times$ quantity

TR = PQ

TR = $\int$ MR $d\theta$

TR $= \int$$(10-2a)d\theta$

TR = $10a-a^2$

$p= \frac{TR}{a}$

$= \frac{(10-a^2)}{a}$

$= 10-a$

$p= 10-5$

$=5$

market price of water per liter = $5