Analysts have estimated the inverse market demand in a homogeneous-product Cournot duopoly to be P = 110 −3 (Q1 + Q2). They estimate costs to be C1(Q1) = 11Q1 and C2(Q2) = 29Q2.a. Determine the reaction function for each firm. Firm 1: Q1 = − Q2 Firm 2: Q2 = − Q1b. Calculate each firm’s equilibrium output. Firm 1: Firm 2: c. Calculate the equilibrium market price. $ d. Calculate the profit each firm earns in equilibrium. Firm 1: $ Firm 2: $

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Analysts have estimated the inverse market demand in a homogeneous-product Cournot duopoly to be P = 110 −3 (Q₁ + Q₂). They estimate costs to be C₁(Q₁) = 11Q₁ and C₂(Q₂) = 29Q₂.

a. Determine the reaction function for each firm.

Firm 1: Q₁ = − Q₂

Firm 2: Q₂ = − Q₁

b. Calculate each firm’s equilibrium output.

Firm 1:

Firm 2:

c. Calculate the equilibrium market price.

$

d. Calculate the profit each firm earns in equilibrium.

Firm 1: $

Firm 2: $

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