2. Cournot competition Consider a town in which only two residents, Gilberto and Juanita, own wells that produce water safe for drinking. Gilberto and Juanita can pump and sell as much water as they want at no cost. Assume that outside water cannot be transported into the town for sale. The following questions will walk you through how to compute the Cournot quantity competition outcome for these duopolists. Consider the market demand curve for water and the marginal cost for collecting water on the following graph. Assume Gilberto believes that Juanita is going to collect 8 gallons of water to sell. On the graph, use the purple points (diamond symbols) to plot the demand curve (D₁) Gilberto faces given Juanita's water collection; then use the grey points (star symbol) to plot the marginal revenue curve (MR₁) Gilberto faces. Finally, use the black point (plus symbol) to indicate the profit- maximizing price and quantity (Profit Max 1) in this case.

2. Cournot competition Consider a town in which only two residents, Gilberto and Juanita, own wells that produce water safe for drinking. Gilberto and Juanita can pump and sell as much water as they want at no cost. Assume that outside water cannot be transported into the town for sale. The following questions will walk you through how to compute the Cournot quantity competition outcome for these duopolists. Consider the market demand curve for water and the marginal cost for collecting water on the following graph. Assume Gilberto believes that Juanita is going to collect 8 gallons of water to sell. On the graph, use the purple points (diamond symbols) to plot the demand curve (D₁) Gilberto faces given Juanita's water collection; then use the grey points (star symbol) to plot the marginal revenue curve (MR₁) Gilberto faces. Finally, use the black point (plus symbol) to indicate the profit- maximizing price and quantity (Profit Max 1) in this case.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 3SCQ: Consider the curve in the figure below, which shows the market demand. marginal cost, and marginal...

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