5. Consider an economy with two farmers, A and B. It costs farmer A 400Q1 dollars to produce Q1 tonnes of sprout and farmer B 1000Q2 dollars to produce Q2 tonnes of sprout. Sprout sells for 2000 – 2 (Q1 + Q2) dollars per tonne. (a) What is A's profit function? (b) Given that B produces Q2, obtain the first order condition for the profit maximising Q, that A should produce. (c) Similarly, find a farmer B equation for Q2, given that A produces Q1. (d) Use linear algebra (matrix) method, compute the Cournot equilibrium. (e) Compute optimal profits and the equilibrium price in the market.

5. Consider an economy with two farmers, A and B. It costs farmer A 400Q1 dollars to produce Q1 tonnes of sprout and farmer B 1000Q2 dollars to produce Q2 tonnes of sprout. Sprout sells for 2000 – 2 (Q1 + Q2) dollars per tonne. (a) What is A's profit function? (b) Given that B produces Q2, obtain the first order condition for the profit maximising Q, that A should produce. (c) Similarly, find a farmer B equation for Q2, given that A produces Q1. (d) Use linear algebra (matrix) method, compute the Cournot equilibrium. (e) Compute optimal profits and the equilibrium price in the market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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