Assume firms' marginal and average costs are constant and equal to c and that inverse market demand is given by P = a -bQ where a, b>0. Suppose now the market is served by 2 firms that choose quantities for their identical products simultaneously. Calculate: i. ii. iii. iv. The Nash equilibrium prices for Cournot gluepolists Firm output Market out Firm profit

Assume firms' marginal and average costs are constant and equal to c and that inverse market demand is given by P = a -bQ where a, b>0. Suppose now the market is served by 2 firms that choose quantities for their identical products simultaneously. Calculate: i. ii. iii. iv. The Nash equilibrium prices for Cournot gluepolists Firm output Market out Firm profit

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Assume firms' marginal and average costs are constant and equal to c and that inverse market demand is
given by P = a - bQ where a, b > 0. Suppose now the market is served by 2 firms that choose quantities
for their identical products simultaneously. Calculate:
i.
ii.
iii.
iv.
The Nash equilibrium prices for Cournot duopolists
Firm output
Market out
Firm profit

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Step 1: Define concept

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Step 2: Setting Up the Cournot Model

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Step 3: Demand and Revenue

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Step 4: Profit Maximization:

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Step 5: First-Order Conditions

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Step 6: Solving for Nash Equilibrium Quantities

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Step 7: Calculating Nash Equilibrium Prices

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Step 8: Calculating Total Market Output

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