Question

) TUU 100 2. The inverse market demand in a homogeneous-product Cournot duopoly is P=20 30 +) and costs are C(q) = 26Q, and C2(Q) = 32Q2. (LOI, LO3) a. Determine the reaction function for each firm. b. Calculate each firm's equilibrium output. c. Calculate the equilibrium market price. d. Calculate the profit each firm earns in equilibrium. .

Answer 1

= 29-0.5 428 -0.50 ) G = 29- 14+ 0.25% 0.75 % = IS a=207 O z = 28-0.5 (20) = 18 Q2 = 18 P = 200-300 +O) = 200 - 3(20+ 18) P= 86 Profit of from 1 = 86820 - 26 (20) = 1720 - 520 = 1200 beft of firma = 86x18 - 32x18 = 1548-576 - 19727

- P- 200-340+ de) TR = pa = 200 10,- 30² - 30,Q. mp = dth - 200- 60- 302 och MG = doceli 26 se proft manimisation, mn = Me, 200-69-302=26 60 = 174-30 29 - 0.5 Oz / Best response proction of siom 1) TR2 - PO2 = 2009,- 300 - 302? Prilly = 01hr - 200 - 30 - 60. Joz m (2 : 0 (102) - 32 dlz At profit manimisation, P = mc2 - 200-30-622 = 32 - 602 = 168-30 - - 28 - 0.5 Q (Best response function of firm 2)