1. Consider the following Cournot model. The inverse demand function is given by p = 30 –Q, where Q = qi + q2. Firm 1's marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) Answer the following questions. а. Derive Firm 1 and Firm 2's reaction functions, respectively. b. Solve the Nash equilibrium (qı", q2"). What is the equilibrium price and what is the profit level с. for each firm?

1. Consider the following Cournot model. The inverse demand function is given by p = 30 –Q, where Q = qi + q2. Firm 1's marginal cost is $6 (c1 = 6). Firm 2 uses a new technology so that its marginal cost is $3 (c2 = 3). There is no fixed cost. The two firms choose their quantities simultaneously and compete only once. (So it’s a one-shot simultaneous game.) Answer the following questions. а. Derive Firm 1 and Firm 2's reaction functions, respectively. b. Solve the Nash equilibrium (qı", q2"). What is the equilibrium price and what is the profit level с. for each firm?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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