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2. Assume there are two firms (A and B) in the market. The market demand is given by P(Q) = 140 – Q %3D Average costs = £20. Firms can choose any (non-negative) quantity. a. Derive (and draw) the best response functions of the firms and find the Cournot equilibrium (quantities, price and profits).

2. Assume there are two firms (A and B) in the market. The market demand is given by P(Q) = 140 – Q %3D Average costs = £20. Firms can choose any (non-negative) quantity. a. Derive (and draw) the best response functions of the firms and find the Cournot equilibrium (quantities, price and profits).

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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2. Assume there are two firms (A and B) in the market. The market demand is given by P(Q) = 140 – Q Average costs = £20. Firms can choose any (non-negative) quantity. a. Derive (and draw) the best response functions of the firms and find the Cournot equilibrium (quantities, price and profits). b. Compare the Cournot equilibrium to the perfectly competitive outcome and to the monopoly outcome. c. One possible strategy for each firm is to produce half of the monopolist quantity. Would the resulting outcome be better for both firms (Pareto dominant)? BRIEFLY explain why this is not the equilibrium outcome of the Cournot game.
Transcribed Image Text:2. Assume there are two firms (A and B) in the market. The market demand is given by P(Q) = 140 – Q Average costs = £20. Firms can choose any (non-negative) quantity. a. Derive (and draw) the best response functions of the firms and find the Cournot equilibrium (quantities, price and profits). b. Compare the Cournot equilibrium to the perfectly competitive outcome and to the monopoly outcome. c. One possible strategy for each firm is to produce half of the monopolist quantity. Would the resulting outcome be better for both firms (Pareto dominant)? BRIEFLY explain why this is not the equilibrium outcome of the Cournot game.
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