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      Question

      Suppose that the (inverse) market demand for good A is

      given by P = 400 - 2Q  Where Q is total industry output. There are two firms that produce A. Each firm has a constant marginal cost of production equal to Rs.40 and they are competing in quantities. That is, they each choose production levels simultaneously. Calculate profit maximising total quantity
      A 90 Correct Answer Incorrect Answer
      B 100 Correct Answer Incorrect Answer
      C 110 Correct Answer Incorrect Answer
      D 120 Correct Answer Incorrect Answer

      Solution

        Equating both BR functions, q2 = 90 – 0.5 (90 - 0.5 q2) q2 = 90 – 45 + 0.25 q2 0.75 q2 = 45 q2 = 60 Also, q1 = 90 – 0.5 (60) = 90 – 30 = 60 Q = q1 + q2 = 120

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