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 + Qs, where QA is the output by Firm A and Qa is the output by Firm B. For both firms, marginal cost is given by MG = 20, 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, MRe=500-QA-2Q8, b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm.
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 + Qs, where QA is the output by Firm A and Qa is the output by Firm B. For both firms, marginal cost is given by MG = 20, 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, MRe=500-QA-2Q8, b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.6P
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