(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal cost of producing crude oil equals zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If both firms engage in noncooperative behavior, the industry output will be barrels, and the price of crude oil will be _.
A)0; $160
B)80; $80
C)100; $60
D)160; $0

Question

Quizplus · Accepted Answer

The industry output and price can be determined by using the Cournot model. The formula for the output of each firm in a Cournot duopoly is:
Q1 = (a - bQ2) / 2
Q2 = (a - bQ1) / 2
where a is the intercept of demand curve, which is 400, and b is the slope of the demand curve, which is -2. 
Setting Q1 = Q2 gives us the industry output, which is:
Q = Q1 + Q2 = (a / 3) = (400 / 3) = 133.33 barrels
The price can be found by plugging this output into the demand function:
P = a - bQ = 400 - 2(133.33) = $133.34 ≈ $60
Thus, the correct answer is choice C.

(Table: Demand for Crude Oil) Look at the Table Demand