Answer to Question #67902 in Other Economics for gizem

Question #67902
Alice and Bob are the only producers of Drink Me™, a magic potion that makes the drinker to shrink in size. Market research in Wonderland indicates that the elasticity of demand for Drink Me™ is 1.25 at all points along the demand curve. The marginal costs of production are 3$ for both Alice and Bob and each producer serves 50% of the market. What is the profit maximising price per dose of Drink Me™ if Alice and Bob compete a la Cournot? Do you have to revise your answer if Alice and Bob compete a la Bertrand?
Expert's answer
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