Suppose That the Duopolists Carl and Simon Face a Demand

question 1

Multiple Choice

Suppose that the duopolists Carl and Simon face a demand function for pumpkins of Q = 16,800 - 800P, where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $1 for each pumpkin produced.If Carl believes that Simon is going to produce Q_s pumpkins this year, then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is R_C (Q_s) =

• A)16,800 - 800Q_s.
• B)4,000 - Q_s/2.
• C)8,000 - Q_s/2.
• D)16,800 - 1,600Q_s.
• E)12,000 - Q_s.

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Definitions:

Opportunity Cost

The cost of the next best alternative foregone as the result of making a decision.

Investment Project

A project undertaken by individuals, firms, or governments involving the allocation of resources to create future benefits, such as income or profit.

Recession

A provisional downturn in economic conditions, involving a downturn in professional and industrial engagements, typically marked by a sequential GDP fall in two quarters.

Private Domestic Investment

Expenditures by private (non-government) entities on domestic capital goods, including constructions and equipment, to produce goods and services in the future.