OLIGOPOLY 1.- Each of two firms, firms 1 and 2, has a cost function C(q) = 30q; the inverse demand function for the firms' output is p = 120-Q, where Q is the total output. Firms simultaneously choose their output and the market price is that at which demand exactly absorbs the total output (Cournot model).(a) Obtain the reaction function of a firm.(b) Map the function obtained in (a), and graphically represent the Cournot equilibrium in this market.(c) Repeat (b), this time analytically.(d) Now suppose that firm 1's cost function is C(q) = 45q instead, but firm 2's cost is unchanged. Analyze the new solution in the market.(e) Obtain the total surplus, consumer surplus, and industry profits in both cases, and compare. What is the effect of the worsening in firm 1's cost?
OLIGOPOLY 1.- Each of two firms, firms 1 and 2, has a cost function C(q) = 30q; the inverse demand function for the firms' output is p = 120-Q, where Q is the total output. Firms simultaneously choose their output and the market price is that at which demand exactly absorbs the total output (Cournot model).
(a) Obtain the reaction function of a firm.
(b) Map the function obtained in (a), and graphically represent the Cournot equilibrium in this market.
(c) Repeat (b), this time analytically.
(d) Now suppose that firm 1's cost function is C(q) = 45q instead, but firm 2's cost is unchanged. Analyze the new solution in the market.
(e) Obtain the total surplus,
Trending now
This is a popular solution!
Step by step
Solved in 8 steps with 5 images
