Consider a duopoly market with 2 firms. Aggregate demand in this market is given by- Q = 500 – P,- where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MG = 20, i=A.B. « Assume the firms compete a la Cournot. e a) Find the inverse demand in this market.

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question a b c

Consider a duopoly market with 2 firms. Aggregate demand in this market is given bye
Q = 500 – P,-
where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where
QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost
is given by MC = 20, i=A.B. -
Assume the firms compete a la Cournot. e
a) Find the inverse demand in this market.
Note that marginal revenue for both firms is given by -
MRA=500-2QA-QB,
MRB=500-QA-2QB.
b) Describe what a best-response curve is and how to find it.
c) Derive the best-response function for each firm.
d) What are the equilibrium quantities?
e) What is the total quantity supplied on this market?
) What is the equilibrium price in this market?
1 1 1 1 1
Transcribed Image Text:Consider a duopoly market with 2 firms. Aggregate demand in this market is given bye Q = 500 – P,- where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MC = 20, i=A.B. - Assume the firms compete a la Cournot. e a) Find the inverse demand in this market. Note that marginal revenue for both firms is given by - MRA=500-2QA-QB, MRB=500-QA-2QB. b) Describe what a best-response curve is and how to find it. c) Derive the best-response function for each firm. d) What are the equilibrium quantities? e) What is the total quantity supplied on this market? ) What is the equilibrium price in this market? 1 1 1 1 1
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