Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q.)=30 + 10Q; and Firm 2 has the cost function TC(Q.)=15+ 20Q. 1) Write down the Profit function of Fim 1: Profit function of Fim 2: 2) The profit functions in part (1), obtain the reaction function of Firm 1 to Firm 2. 3) Using the profit functions in part (1), obtain the reaction function of Firm 2 to Firm 1. 4) Using the reaction functions from parts (2) and (3), obtain the profit maximizing output level of Firm 1. 5) Using the result from part (4), obtain the profit maximizing output level of Firm 2. 6) Now assume that the firms engage in a sequential quantity competition with Firm 1 as the first mover. Construct the profit function of Firm 1. 7) Using the profit function from part (6), obtain the profit maximizing output level of Firm 1. 8) Obtain the profit maximizing output level of Firm 2.
Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q.)=30 + 10Q; and Firm 2 has the cost function TC(Q.)=15+ 20Q. 1) Write down the Profit function of Fim 1: Profit function of Fim 2: 2) The profit functions in part (1), obtain the reaction function of Firm 1 to Firm 2. 3) Using the profit functions in part (1), obtain the reaction function of Firm 2 to Firm 1. 4) Using the reaction functions from parts (2) and (3), obtain the profit maximizing output level of Firm 1. 5) Using the result from part (4), obtain the profit maximizing output level of Firm 2. 6) Now assume that the firms engage in a sequential quantity competition with Firm 1 as the first mover. Construct the profit function of Firm 1. 7) Using the profit function from part (6), obtain the profit maximizing output level of Firm 1. 8) Obtain the profit maximizing output level of Firm 2.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe
aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q.)=30 + 10Q; and
Firm 2 has the cost function TC(Q.)=15+ 20Q.
1) Write down the
Profit function of Fim 1:
Profit function of Fim 2:
2) The profit functions in part (1), obtain the reaction function of Firm 1 to Firm 2.
3) Using the profit functions in part (1), obtain the reaction function of Firm 2 to Firm 1.
4) Using the reaction functions from parts (2) and (3), obtain the profit maximizing output level of
Firm 1.
5) Using the result from part (4), obtain the profit maximizing output level of Firm 2.
6) Now assume that the firms engage in a sequential quantity competition with Firm 1 as the first
mover. Construct the profit function of Firm 1.
7) Using the profit function from part (6), obtain the profit maximizing output level of Firm 1.
8) Obtain the profit maximizing output level of Firm 2.
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