Duopoly: 1. Consider a duopoly game with 2 firms. The market inverse demand curve is given by P(Q) = 120-Q, where Q=q₁ + q₂ and q, is the quantity produced by firm qi i. The firm's long run total costs are given by C₁(q₁)=2q₁ and C₂(q2)=92, respectively. a. Determine the Nash Equilibrium for Cournot competition, in which firms compete based on quantity. What is each firm's best response as a function of the other firm's output? Graph these best response functions in on the same graph. Compute the associated payoffs for each firm. b. Determine the Nash Equilibrium for Bertrand competition, in which firms compete based on price and stand ready to meet market demand at that price. What is each firm's best response as a function of the other firm's price? Granh these bort rom
Duopoly: 1. Consider a duopoly game with 2 firms. The market inverse demand curve is given by P(Q) = 120-Q, where Q=q₁ + q₂ and q, is the quantity produced by firm qi i. The firm's long run total costs are given by C₁(q₁)=2q₁ and C₂(q2)=92, respectively. a. Determine the Nash Equilibrium for Cournot competition, in which firms compete based on quantity. What is each firm's best response as a function of the other firm's output? Graph these best response functions in on the same graph. Compute the associated payoffs for each firm. b. Determine the Nash Equilibrium for Bertrand competition, in which firms compete based on price and stand ready to meet market demand at that price. What is each firm's best response as a function of the other firm's price? Granh these bort rom
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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