1. Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = a- b(q + dq2) P2 = a - b(dqı + 92) where d is some number between 0 and1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d= 0 or d = 1? (b) Calculate the equilibrium prices and quantities in this market. (Note: the firms are not identical).
1. Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = a- b(q + dq2) P2 = a - b(dqı + 92) where d is some number between 0 and1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d= 0 or d = 1? (b) Calculate the equilibrium prices and quantities in this market. (Note: the firms are not identical).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 5 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education