Price And Quantity Determination Under Duopoly - SS2 Economics Past Questions and Answers - page 1
In a duopoly, how many firms dominate the market?
Two
Three
Four
What is the pricing strategy in a duopoly determined by?
Each firm's cost structure
The actions and responses of each firm's competitor
The government's price regulations
The market demand and supply forces
How does a duopoly affect the quantity of goods produced compared to a monopoly?
Each firm produces more goods in a duopoly
Each firm produces less goods in a duopoly
There is no difference in the quantity of goods produced between a duopoly and a monopoly
It depends on the specific market conditions
(Each firm produces less goods in a duopoly. Both firms need to consider the potential reactions of their competitor before setting their own strategy. This leads to a situation where both firms may end up producing less and charging a higher price than what they would have in a monopoly)
What is the potential outcome of a price war in a duopoly?
Both firms earn a higher profit
Both firms earn a lower profit
One firm earns a higher profit and the other earns a lower profit
Both firms earn the same profit as in a Nash equilibrium
What is the Nash equilibrium in a duopoly?
The point where one firm dominates the market
The point where both firms produce more goods than in a monopoly
The point where both firms produce less goods and charge a higher price than in a monopoly
The point where both firms produce the same quantity and charge the same price
How does the pricing strategy in a duopoly differ from that of a monopoly?
In a duopoly, the pricing strategy is determined by the actions and responses of each firm's competitor, whereas in a monopoly, the pricing strategy is solely determined by the monopolist.
How does the quantity of goods produced in a duopoly compare to that in a price war?
The quantity of goods produced in a duopoly is higher than in a price war, as both firms end up producing less than what they would have produced in a monopoly, but more than what they would have produced in a price war.
Suppose there are two firms, A and B, in a duopoly market. The market demand and cost functions are given as follows:
Demand function: P = 100 - Q
Cost function: C = 20Q
where P is the market price, Q is the total quantity of goods produced by both firms, and C is the total cost of production. Assuming that firm A and firm B have equal production costs, what is the Nash equilibrium price and quantity in this duopoly market?
We need to determine the total quantity produced by both firms. Since each firm has equal production costs, they will produce the same quantity. Therefore, the total quantity produced, Q, can be written as
Q = QA + QB
We need to find each firm's profit-maximizing quantity given the other firm's quantity. Since the firms have equal costs, we can assume that they will split the market equally:
QA = (100 - QB - 20)/2
QB = (100 - QA - 20)/2
Solve for QA and QB where QA = QB.
Substituting QB = QA into the best response function for firm A, we get:
QA = (100 - QA - 20)/2
2QA = 80
QA = 40
Similarly, we can find QB = 40.
We need to calculate the market price, which can be found by substituting Q = 80 into the demand function:
P = 100 - Q
P = 100 - 80
P = 20
Thus, the Nash equilibrium price and quantity in this duopoly market are P = 20 and Q = 80, respectively.