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Managerial Economics · End Term · 31 Aug 2025 · May 2025 term · Set QIA1

Question 25: Suppose a second firm enters the market. Let Q1 be the o…

Question 25

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A monopolist can produce at a constant average (and marginal) cost of AC = MC = $5. It faces a market demand curve given by Q = 53 – P.
Based on the above data, answer the given subquestions.

Suppose a second firm enters the market. Let Q1 be the output of the first firm and Q2 be the output of the second. Market demand is now given by Q1 + Q2 = 53 – P. Assuming that this second firm has the same costs as the first and the firms are competing as per the Cournot competition, find out the equilibrium quantity for both firms, equilibrium price and difference in profit of a firm compared to monopolist case.
Now suppose that the two firms are competing in the Stackelberg manner where one of the firms makes its output decision before the other. Suppose Firm 1 is the Stackelberg leader (i.e., makes its output decisions before Firm 2). Calculate the equilibrium quantity for both the firms, equilibrium market price and difference in profit of both firms compared to Cournot case.

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Correct answer: 80

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Question 25 of 37 in the IIT Madras BS Managerial Economics (Managerial Economics) End Term paper sat on 31 Aug 2025, in the May 2025 term (IIT M IMPROVEMENT FN EXAM QIA1 31 Aug 2025). It carries 1 mark.

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