Bartels and Jaymes Are Two Individuals Who One Day Discover

Essay

Bartels and Jaymes are two individuals who one day discover a stream that flows wine cooler instead of water. Bartels and Jaymes decide to bottle the wine cooler and sell it. The marginal cost of bottling wine cooler and the fixed cost to bottle wine cooler are both zero. The market demand for bottled wine cooler is given as:
P = 90 - 0.25Q
where Q is the total quantity of bottled wine cooler produced and P is the market price of bottled wine cooler.
a. What is the economically efficient price of bottled wine cooler?
b. What is the economically efficient quantity of bottled wine cooler produced?
c. If Bartels and Jaymes were to collude with one another and produce the profit-maximizing monopoly quantity of bottled wine cooler, how much bottled wine cooler will they produce?
d. Given the output level in (c), what price will Bartels and Jaymes charge for bottled wine cooler?
e. At the output level in (c), what is the welfare loss?
f. Suppose that Bartels and Jaymes act as Cournot duopolists, what are the reaction functions for Bartels and for Jaymes?
g. In the long run, what level of output will Bartels produce if Bartels and Jaymes act as Cournot duopolists?
h. In the long run, what will be the price of wine coolers be if Bartels and Jaymes act as Cournot duopolists?
i. Suppose that after Bartels and Jaymes have arrived at their long run equilibrium as Cournot duopolists, another individual, Paul Mason, discovers the streams. Paul Mason, who will sell no wine cooler before its time, decides to bottle wine coolers. There are now three Cournot firms producing at once. In the long run, what level of output will Bartels produce?