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Cournot Duopoly and Pricing Strategy

1. Suppose that in a perfectly competitive industry the equilibrium industry quantity is 10,000 units. Suppose that the monopoly output is 5,000. For a 2-firm Cournot Oligopoly (N =2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?
a. 3, 000 units
b. 5,000 units
c. 6,667 units
d. 10,000 units
e. 15,000 units

2. A manufacturer produces two types of computer software, Word processing (W) and Spreadsheet (S), which is offered to two different retail outlets (#1 and #2). The following table shows the maximum price each retail outlet is willing to pay for each individual software product.
Product W Product S
Retail #1 $170 $105
Retail #2 $95 $135
What is the optimal pricing strategy that will maximize revenue for the manufacturer, given the maximum the retail outlets are willing to pay?
a. Bundle both products (W and S) and sell them at $230.
b. Price product W at $170 and Product S at $135.
c. Price product W at $170 and Product S at $170.
d. Price product W at $95 and Product S at $105.
e. Bundle both products (W and S) and sell them at $275

Solution Preview

1. Suppose that in a perfectly competitive industry the equilibrium industry quantity is 10,000 units. Suppose that the monopoly output is 5,000. For a 2-firm Cournot Oligopoly (N =2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?
a. 3, 000 units
b. 5,000 units
c. 6,667 units
d. 10,000 units
e. 15,000 units

The Cournot equilibrium quantity always lies between the monopoly and competitive market equilibrium quantities. This is due to the fact that duopoly contains some ...

Solution Summary

Discussion of pricing strategy, bundling, and Cournot equilibrium

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