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Assume that the Japanese HNB market is a Cournot duopoly between PM and JT only. Use...

  1. Assume that the Japanese HNB market is a Cournot duopoly between PM and JT only. Use a diagram to explain how an increase in demand for HNB affects the market and the firms. State clearly the impact on market quantity, market price, the quantity and profits of each firm

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Answer #1

Let take an example,

Market demand of hnb :p=400-Q and Marginal cost equal to 60

The best response function of PM:Qpm=170-0.5Qjt

Best response function of JT:Qjt=170-0.5Qpm

By Qjt into Qpm we get ,

Qpm=340/3

Qjt=340/3

Market Q=680/3

Market p=520/3

Each firm profit=520/3-60)*340/3=115,600/9

If market demand increase,

Then new market demand curve,

P=500-Q

New best response FUNCTION of PM:Qpm=220-0.5Qjt

New best response FUNCTION of JT:Qjt=220-0.5 Qpm

Qpm=440/3

Qjt=440/3

Market Q=880/3

Market p=620/3

Profit of each firm=620/3-60)*440/3=193600/9

Conclusion : increase in demand Increases market and each firm output.markey prices and profit of each firm Increases

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