Example – Cournot Model Calculate the Cournot equilibrium if the two firms have total cost functions given respectively by: TCA = 10QA and TCB = 10QB and the market demand function is: AR = 50 – QA – QB Dr.Sumudu Perera 12/04/2019

Example – Price Leadership Suppose that the market for crude oil is an oligopoly and total market demand is given by; Qd = 70,000 – 5,000P where QdM is the quantity of oil in thousands of barrels per year and P is the dollar price per barrel. Suppose also that there are 2 identical small producers of crude oil and they follow the price initiatives of a price leader. The supply curve of the small firms is given by Qsf = -5000 + 5000P where Qsf is the output (in thousands) supplied by two small firms. The total cost function of the price leader is given by; TCL = 10000 + 3.5Q – 0.0001Q 2

Derive the demand of the price leader. Calculate leader’s profit-maximizing price and output. Derive the output level supplied by the two small firms Dr.Sumudu Perera 12/04/2019