Consider an industry with 2 firms engaging in quantity competition and facing the market demand function as Q = 200 – 4P. Suppose each firm bears the same cost production as C(q) = 100 + 0.25q? when producing q units. a. Derive Firm 1's best response function, q1(q2), against Firm 2's output level choice, q2. b. Find the equilibrium output level of Firm 1 at the N.E. equilibrium. c. Find the deadweight loss caused by the duopoly. d. Find again the equilibrium output level of Firm 1 if it acts as the leader while Firm 2 as the follower.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider an industry with 2 firms engaging in quantity competition and facing the market demand
function as Q = 200 – 4P. Suppose each firm bears the same cost production as C(q) = 100 +
0.25q? when producing q units.
a. Derive Firm 1's best response function, q1(q2), against Firm 2's output level choice, q2.
b. Find the equilibrium output level of Firm 1 at the N.E. equilibrium.
c. Find the deadweight loss caused by the duopoly.
d. Find again the equilibrium output level of Firm 1 if it acts as the leader while Firm 2 as the follower.
Transcribed Image Text:Consider an industry with 2 firms engaging in quantity competition and facing the market demand function as Q = 200 – 4P. Suppose each firm bears the same cost production as C(q) = 100 + 0.25q? when producing q units. a. Derive Firm 1's best response function, q1(q2), against Firm 2's output level choice, q2. b. Find the equilibrium output level of Firm 1 at the N.E. equilibrium. c. Find the deadweight loss caused by the duopoly. d. Find again the equilibrium output level of Firm 1 if it acts as the leader while Firm 2 as the follower.
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