Answer to Question #289029 in Financial Math for Netsanet

Question

Two duopolists produce and quantities of a homogenous product . The market demand of the product is given by Q= 240-2p where Q= Qa +Qb and the price of the product. The total functions of the duopolists are given by: C(Qa)= 60+4Qa and C(Qb)= 50+0.625Qb^2

a) Find the level of output that maximizes the profit of each firm and the corresponding profit

and price.

b) Find the level of output that maximizes their profit if the two firms corporate and the

corresponding profit and price

Answer 1

a)

$Q=240−2p$

$c(Q_a​)=60+4Q_a$

$​c(Q_b​)=50+0.625Q_b$

​where

$Q=Q_a​+Q_b$ ​

from $Q=240−2p, p=120−0.5Q$ :

$π_a=pQ−c(Q_a​)=(120−0.5Q)Q_a​−(60+4Q_a​)=$

$=120Q_a​−0.5(Q_a​)^2−0.5Q_a​Q_b​−60−4Q_a$

$​π_a​'=120−Q_a​−0.5Q_b​−4=0$

$Q_a​=116−0.5Q_b$ (1)

​$π_b​=pQ−c(Q_b​)=(120−0.5Q)Q_b​−(50+0.625Q_b^2​)=$

$=$ $120Q_b​−0.5Q_a​Q_b​−50−1.125Qb^2$

​$π_b'​=120−0.5Q_a​−2.25Q_b=0$

$​Q_b​=53.3−0.22Q_a$ (2)

from equation 1 and 2:

$Q_b​=53.3−0.22(116−0.5Q_b​)$

$Q_b​=31.21$

$Q_a​=116−0.5Q_b=116−0.5(31.21)=100.4$

​

Then we have:

$π_a​=120Q_a​−0.5(Q_a​)^2−0.5Q_a​Q_b​−60−4Qa$

$​π_a​=120(100.4)−0.5(100.4)^2−0.5(100.4)(31.21)−60−4(100.4)=4979.58$

$π_b​=120(31.21)−0.5(100.4)(31.21)−50−1.125(31.21)^2=1032.64$

$p=120−0.5(Q_a​+Q_b​)=120−0.5(100.4+31.21)=54.195$

b)

$Q=240+2p$

$c(Q)=c(Q_a​)+c(Q_b​)=60+4Q_a​+50+0.0625Q_b^2=110+4Q_a​+0.625Q_b^2 ​$

$p=120−0.5Q$

​$π=pQ−c(Q)$

$π=(120−0.5Q)Q−110−4Q−0.625Q^2=120Q−0.5Q^2−110−4Q−0.625Q^2$

$π'=120−Q−4−1.25Q=0$

$Q=51.56$

$p=120−0.5Q=p=120−0.5Q=94.22$

$π=116Q−1.125Q ^ 2 −110=2880.22$