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April 9, 2021

Dot Image (b) Suppose a second firm namely

General Questions

(b) Suppose a second firm namely Pure Water (PTY) Ltd enters the market. Let o1 be the
output of Clear Water and g; is the output of Pure Water. Market demand is thus now
given by o1+o2 2 Qt] — P. Assuming Pure Water has the same oosts as Clear Water. If eaoh
?rm is to maximise its pro?ts, taking its n’val’s output as given {i_e_1 behave as Coumot
oligopolists):

(i) What will be the equilion’um guantities selected ov each firm“?
{ii} What is the total output and what is the market price and pro?t for each ?rm“?
{iii} Whv is the market [put-lie) better off as under the monopolist in question {a}?

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