21 May Amy and Soma discover a stream that áows wine.
Please answer all three parts of this one question and show all work in detail. 6. Amy and Soma discover a stream that áows wine. Amy and Soma decide to bottle the wine and sell it.
The marginal cost and the Öxed cost to bottle wine are $2 and 0 respectively. The market demand for bottled wine is given by: P = 602 2Q; where Q is the total quantity of bottled wine produced and P is the market price of bottled wine.
(a) What are the economically efficient (in other words, perfectly competitive) price and quantity of bottled wine and how much will be the profit?
(b) Suppose that Amy and Soma act as Cournot duopolists.How much bottled wine will each one of them produce? At what price? How much profitt will each one of them earn?
(c) Suppose Soma is a ‘naive’ Cournot duopolist so that Amy can act as a Stackelberg leader. What level of output will each one of them produce? What will be the price of wine? How much will be the proÖt for each one of them?
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