Suppose that market demand for golf balls is described by Q = 90 − 3P, where Q is measured in kilos of balls. There are two firms that supply the market.
Firm 1 can produce a kilo of balls at a constant unit cost of $15 whereas firm 2 has a constant unit cost equal to $10.
a) Suppose the firms compete in quantities. How much does each firm sell in a Cournot equilibrium? What is the market price and what are the firms’ profits?
b) Suppose the firms compete in price. How much does each firm sell in a Bertrand equilibrium? What is market price and what are the firms’ profits?
