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Fri 4 Dec, 2015 09:14 pm
There are two producers, with constant marginal costs c1 and c2, c1>c2. There is a linear demand q = K - p and the two producers compete by setting quantities. Mark one correct statement below. How do you approach this type of question?
a. The producers each produce 2/3 of the production of a monopolist with a constant marginal cost c = c1
b. The total quantity produced by the two producers is about as much as the quantity produced by a monopolist with c = c2
c. If c1 were to decrease to c'1, where c2<c'1<c1 then the total quantity produced would increase, but the total quantity produced by producer 2 would decrease.
d. The consumers are better off than if the producers competed by setting prices
e. If c1=c2 then the producers produce a quantity which maximizes consumer surplus