Consider a Cournot duopoly with the inverse demand P = 260 2Q. Two Örms compete choosing their quantities. Both Örms have constant marginal and average cost MC = AC = 20. Find each firms best response function. Find the Cournot equilibrium. c. Plot the best response curves and illustrate the equilibrium point

Consider a Cournot duopoly with the inverse demand P = 260 2Q. Two Örms compete choosing their quantities. Both Örms have constant marginal and average cost MC = AC = 20. Find each firms best response function. Find the Cournot equilibrium. c. Plot the best response curves and illustrate the equilibrium point

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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1. Consider a Cournot duopoly with the inverse demand P = 260 - 2Q. Two firms compete choosing their quantities. Both firms have constant. marginal and average cost MC = AC = 20. a. Find each firm's best response function. b. Find the Cournot equilibrium. c. Plot the best response curves and illustrate the equilibrium point.
1. Best responses in a Cournot Oligopoly Firm A and Firm B sell identical goods Total market demand for the good is: The inverse demand function is therefore 1 P(QM) = 780 -Q=780 -0.02222QM 45 QM is total market production (i.e., combined production of firm's A and B. That is: Q(P) = 35, 100- 45P 2M = A +QB As a result, the inverse demand curve for each firm is: P(QA, QB) = 780- -1/32₁-752 45 Unlike the example in class, the two firms have different costs. = 4000A TCA (QA) TCB (QB) = 260QB = 780 -0.022220A -0.02222QB a. Using the demand function and the cost functions above, what is firm A's profit function. b. Using the profit function above and assuming that firm B produces Qg, calculate what firm A's best response is to firm B’s decision to produce QB- Note: Firm A's best response should be a function of B
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How do pricing strategies vary across markets that are characterized bymonopolistic, oligopolistic, monopolistic competition, and purecompetition?
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Consider a Cournot duopoly with the inverse demand P = 200−2Q. Firm 1 and 2 compete by simultaneously choosing their quantities. Both firms have constant marginal and average cost MC = AC = 20. A) Find each firm’s best response function. Plot the best response functions (label the x-axes as ?1 and y-axes as ?2 ). B) Find the Cournot-Nash equilibrium quantities, profits and market price. Illustrate the equilibrium point on your graph in part A
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