P=15-Q/1000. Suppose there are two firms in this market. Compute equilibrium quantities and profits for each firm, and the equilibrium market price. Hint: Start with thinking about the number of loaves a firm will sell in a month — this quantity must be where its marginal revenue is equal to its marginal cost. But notice that firm 1’s marginal revenue will depend on firm 2’s quantity choice, and vice versa. To construct a spreadsheet, start by constructing a formula for firm 1’s marginal revenue as a function of its quantity choice and firm 2’s quantity choice. If firm 1 is making 1000 loaves and firm 2 is also making 1000 loaves, then firm 1’s marginal revenue is how its revenue changes if it increases quantity by one, assuming firm 2 keeps its quantity at 1000. Do the same firm firm 2, and then use Solver to find quantities where MR = MC for both firms.
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