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 A and qв. Inverse demand is P(9A + 9B) = 18 - 9A-9B and costs are C(q) = 3 * q for both firms. Firm B is a domestic firm (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 qв units, firm B receives a payment of s *qg from the government.) You must show your work at each step, unless the questions is followed by "No work required." (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 (9A, 93). 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. (I recommend the first approach.)

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 A and qв. Inverse demand is P(9A + 9B) = 18 - 9A-9B and costs are C(q) = 3 * q for both firms. Firm B is a domestic firm (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 qв units, firm B receives a payment of s *qg from the government.) You must show your work at each step, unless the questions is followed by "No work required." (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 (9A, 93). 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. (I recommend the first approach.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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