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Suppose that two firms are producers of spring water, which can be obtained at zero cost. The marginal revenue for their combined output is MR =10-2Q where MR is marginal revenue and Q is the number of litres of spring water sold by both firms per hour. If the 2 producers act according to the oligopoly model, how much will their combined output be? How much is the market price of water per litre?

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Answer:

Combined output 10-a

Market price $5

Explanation:

Calculation for how much will their combined output be

Marginal Revenue = Marginal Cost

10-2a = 0

2a = 10

a =10/2

a= 5

Using this formula

Total revenue = Price× Quantity or TR = PQ

TR = ∫ MR dθ

TR = =∫(10-2a)dθ

TR = 10a-a^2

p= TR/a

p= (10-a^2)/a

p= 10-a Combined output

Calculation for the market price of water per litre

a = 5

p= 10-a

p=10−5

p=5

Therefore the combined out put will be 10-a and the market price of water per liter will be $5

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