Determine the reaction function for each firm. Firm 1: Q1 = − Q2 Firm 2: Q2 = − Q1 b. Calculate each firm’s equilibrium output. Firm 1: Firm 2: c. Calculate the equilibrium market price. $ d. Calculate the profit each firm earns in equilibrium.

Determine the reaction function for each firm. Firm 1: Q1 = − Q2 Firm 2: Q2 = − Q1 b. Calculate each firm’s equilibrium output. Firm 1: Firm 2: c. Calculate the equilibrium market price. $ d. Calculate the profit each firm earns in equilibrium.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter9: Monopolistic Competition And Oligoply

Section: Chapter Questions

Problem 11SQP

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Question

Analysts have estimated the inverse market demand in a homogeneous-product Cournot duopoly to be P = 110 −3 (Q₁ + Q₂). They estimate costs to be C₁(Q₁) = 11Q₁ and C₂(Q₂) = 29Q₂.

a. Determine the reaction function for each firm.

Firm 1: Q₁ = − Q₂

Firm 2: Q₂ = − Q₁

b. Calculate each firm’s equilibrium output.

Firm 1:

Firm 2:

c. Calculate the equilibrium market price.

$

d. Calculate the profit each firm earns in equilibrium.

Firm 1: $

Firm 2: $

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Step 1: Define equilibrium level.

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Step 2: Calculate the reaction function

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Step 3: Calculate each firm's equilibrium output.

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Step 4: Calculate the equilibrium market price.

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Step 5: Calculate profit.

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