Suppose there is a duopoly in which two firms producing two goods that are perfect substitutes face the following demand, marginal revenues, and costs:
Inverse Demand:
where
Firm 1 Marginal Revenue:
Firm 2 Marginal Revenue:
Firm 1 costs:
implying a constant marginal cost of $20 (
)
Firm 2 costs:
implying a constant marginal cost of $20 (
)
If the two firms engage in Cournot competition, the equilibrium quantity in the market (Q*, the sum of each individual firm quantity) is
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, the equilibrium price in the market is $