Answer to Question #67968 in Other Economics for Klea

Question #67968
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?
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Expert's answer
2017-05-03T08:59:40-0400
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