Suppose that there are only two firms (Firm A and Firm B) in the market for decorative lampshades. Letthe inverse demand function and the total cost function be given by P = 50 –Q and TC = 2Q.
The firms compete with each other by choosing the quantity of lampshades the wish to produce. In thisscenario Firm A is able to choose its production level first
(a) How many lampshades will Firm A choose to produce?
(b) How many lampshades will Firm B choose to produce?
(c) Solve for the market price for the lampshades.
(d) Solve for the profit earned by each firm. What’s the industry profit?