Assume there are two firms in the market producing a homogeneous good. Firms simultaneously choose their quantities, q1 and q2, and both have the same constant marginal cost, c. The market demand is linear in total quantity, as follows: d = a - b* q where q = q1 + q2. a. Identify each firm's best response. b. From part a, derive the Nash equilibrium of this market competition. c. Show the total duopoly profit is less than the monopoly profit.

Assume there are two firms in the market producing a homogeneous good. Firms simultaneously choose their quantities, q1 and q2, and both have the same constant marginal cost, c. The market demand is linear in total quantity, as follows: d = a - b* q where q = q1 + q2. a. Identify each firm's best response. b. From part a, derive the Nash equilibrium of this market competition. c. Show the total duopoly profit is less than the monopoly profit.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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