(2) (Assume that s = 0 (there is no subsidy.)(a) Write down firm A’s profit function. (No work required.)(b) Find each firm’s best response function. (You may do this directly or by setting s to zero inyour expressions from (1b).(c) Solve for equilibrium outputs (q*A, q*B). You may either use the symmetry in this problem toassume a symmetric solution, or solve for firm B’s best response and solve the two best responsessimultaneously. (d) Solve for the equilibrium price.(e) Solve for the equilibrium profits. All question are with regards to the following set up. There are two firms A and B. Firmscompete in a Cournot Duopoly in Karhide. They set quantities qa and qB. Inverse demand isP(qA + qB) = 18 – qA – qB and costs are C(q)(in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engagesin a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm Bproduces and sells qB units, firm B receives a payment of s * qB from the government.)You must show your work at each step, unless the questions is followed by "No work required."3 * q for both firms. Firm B is a domestic firm

Introduction Here are two firms in Karhide. Firm A is foreign firm and firm B is domestic firm. For…

Answered: (2) (Assume that s = 0 (there is no…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(2) (Assume that s = 0 (there is no subsidy.)
(a) Write down firm A’s profit function. (No work required.)
(b) Find each firm’s best response function. (You may do this directly or by setting s to zero in
your expressions from (1b).
(c) Solve for equilibrium outputs (q*A, q*B). You may either use the symmetry in this problem to
assume a symmetric solution, or solve for firm B’s best response and solve the two best responses
simultaneously.
(d) Solve for the equilibrium price.
(e) Solve for the equilibrium profits.

All question are with regards to the following set up. There are two firms A and B. Firms
compete in a Cournot Duopoly in Karhide. They set quantities qa and qB. Inverse demand is
P(qA + qB) = 18 – qA – qB and costs are C(q)
(in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages
in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B
produces and sells qB units, firm B receives a payment of s * qB from the government.)
You must show your work at each step, unless the questions is followed by "No work required."
3 * q for both firms. Firm B is a domestic firm

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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