Consider a Cournot duopoly with the inverse demand P = 200 − 2Q. Firm 1 and 2 compete by simultaneously choosing their quantities. Both firms have constant marginal and average cost MC = AC = 20. A) Find each firm’s best response function. Plot the best response functions (label the x-axes as ?1 and y-axes as ?2 ). B) Find the Cournot-Nash equilibrium quantities, profits and market price. Illustrate the equilibrium point on your graph in part (A). C) Suppose instead that firm 1 had MC = AC = 20, but firm 2’s MC = 8. What is the Cournot-Nash equilibrium outputs and profits now? How would this affect your answers to part (B)? Explain
Consider a Cournot duopoly with the inverse demand P = 200 − 2Q. Firm 1 and 2 compete by simultaneously choosing their quantities. Both firms have constant marginal and average cost MC = AC = 20. A) Find each firm’s best response function. Plot the best response functions (label the x-axes as ?1 and y-axes as ?2 ). B) Find the Cournot-Nash equilibrium quantities, profits and market price. Illustrate the equilibrium point on your graph in part (A). C) Suppose instead that firm 1 had MC = AC = 20, but firm 2’s MC = 8. What is the Cournot-Nash equilibrium outputs and profits now? How would this affect your answers to part (B)? Explain
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.5P
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Consider a Cournot duopoly with the inverse demand P = 200 − 2Q. Firm 1 and 2 compete by simultaneously choosing their quantities. Both firms have constant marginal and average cost MC = AC = 20.
A) Find each firm’s best response function. Plot the best response functions (label the x-axes as ?1 and y-axes as ?2 ).
B) Find the Cournot-Nash
C) Suppose instead that firm 1 had MC = AC = 20, but firm 2’s MC = 8. What is the Cournot-Nash equilibrium outputs and profits now? How would this affect your answers to part (B)? Explain
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