A Duopoly Faces the Inverse Demand Curve P = 160

question 53

Multiple Choice

A duopoly faces the inverse demand curve p = 160 - 2q.Firm 1's total cost function is given by C₁(q₁) = 8q₁ and firm 2's total cost function is given by C₂(q₂) =0 10q₂.In a Cournot equilibrium,

• A)the firm with the lower marginal cost produces more.
• B)both firms will produce the same amount.
• C)the firm with the higher marginal cost produces more to cover the higher costs.
• D)the reaction function for both firms is the same since both firms have a constant marginal cost.
• E)More than one of the above is correct.

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Definitions:

Price Paid

The amount of money exchanged for the acquisition of a good, service, or asset.

Original Issue Discount

The difference between the face value of a bond and its offering price when the bond is issued at a lower price.

Semiannual Coupon

A fixed income security feature that represents the payment of interest to bondholders twice a year.

Par Value

The nominal or face value assigned to a security by the issuer, which may differ from its market value.