Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q=25-P₁ where is the total quantity produced. Firm 1's marginal cost is C₁ = 3. Firm 2's marginal cost of production is = 4 with probability 0.3 and C=2 with probability 0.7 Firm 2 knows its own cost function and firm 1's cost function. Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. In a Bayesan NE, the strategy of firm 2 is:

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter15: Oligopoly And Strategic Behavior
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Economics
Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q=25-P₁
where is the total quantity produced. Firm 1's marginal cost is C₁ = 3. Firm 2's marginal cost of production is CH = =4
0.7. Firm 2 knows its own cost function and firm 1's cost function.
with probability 0.3
O 165/30
Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. In a Bayesan NE, the
strategy of firm 2 is:
O 7.2
(6,8)
and C
O (6.9,7.9)
= 2 with probability
Transcribed Image Text:Economics Consider the following Cournot duopoly. Both firms produce a homogenous good. The demand function is Q=25-P₁ where is the total quantity produced. Firm 1's marginal cost is C₁ = 3. Firm 2's marginal cost of production is CH = =4 0.7. Firm 2 knows its own cost function and firm 1's cost function. with probability 0.3 O 165/30 Firm 1 knows its own cost function and the probability distribution of firm 2's marginal cost. In a Bayesan NE, the strategy of firm 2 is: O 7.2 (6,8) and C O (6.9,7.9) = 2 with probability
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