Consider a duopoly market with 2 firms. Aggregate demand in this market is given by- Q = 500 – P," where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where Qa is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A.B. « Assume the firms compete a la Cournot. « a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by - MRA=500-2QA-QB,+ MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? f) What is the equilibrium price in this market? t t t t
Consider a duopoly market with 2 firms. Aggregate demand in this market is given by- Q = 500 – P," where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where Qa is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A.B. « Assume the firms compete a la Cournot. « a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by - MRA=500-2QA-QB,+ MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? f) What is the equilibrium price in this market? t t t t
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.1P
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