Do question number 14 from the Oligopoly and Game Theory chapter. This is the first challenge question (at least for me) and starts out "The French economist Antoine Cournot developed an interesting model of competition....." Picture below. For the graph note that both reaction functions should be on the same graph. This graph should have Firm X quantity on one axis and Firm Y quantity on the other. One curve gives you the quantity of firm X for every given quantity of firm Y and the other curve gives the quantity of firm Y for any given quantity by firm X. In other words, even though they are the same function, there should be two different lines on the graph. Your submission should include the table, the graph and the answer to the question at the end with description. Please try to think carefully about the description. It shouldn't be long but there is a key idea I want to be sure that you get. One sentence should be enough if you get the thing. CHALLENGESay400, or 600 gallons ofout the profit-maximizingever,spring water.Then, figureamount ofproduce in response. Fill inspringthethe table.then Firm X should..If Firm Y producesO galproduce..how a spring water200 galduopoly example.400 galorher firm is going to produce. Also, the firm600 galbasically assume that ônce the other firmWhat you have just constructed is whateconomists would call Firm X's reaction functionchange its decision.Here's an example. Suppose the marketdemand curve for gallons of fresh spring waterent choices Firm Y could make, Firm Y is potactually going to choose just any random levelof output. In fact, Firm Y has its own reactionfunction, where it considers how best to respondto what it thinks Firm X is doing. Because bothfirms have the same zero marginal cost, the twolooks like the one in the next table and, to koethings simple, the marginal cost of spring waterproduce 100 gallons of spring water,then Firm X knows that if it produces 0 gallons.the price will be $2.75; if it produces 100 gal-lons, the price will be $2.50, and so on. Basically,Firm X will face its own demand curve whereforexample,reaction functions are symmetrical. (Thus, FirmY's reaction function looks the same, only with"X" and "Y" switched.)all of the quantities are lower by 100.Graph the two reaction functions. Do youno.notice any points that stand out? Describe whypoint represents an equilibrium for both firms.15. The following diagram shows the monthlydemand for hot dogs in a large city. The mar-thisMarket DemandPriceQuantity Demanded (gal)ginal cost (and average cost) is a constant $2 perhot dog.$3.00$2.75$2.50Price$2.25$2.00$1.75$1.50$4009$1.252008Demand$0.75Quantity(thousands)006$0.50The Market for Hot Dops000 0

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ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Do question number 14 from the Oligopoly and Game Theory chapter. This is the first challenge question (at least for me) and starts out "The French economist Antoine Cournot developed an interesting model of competition....." Picture below. For the graph note that both reaction functions should be on the same graph. This graph should have Firm X quantity on one axis and Firm Y quantity on the other. One curve gives you the quantity of firm X for every given quantity of firm Y and the other curve gives the quantity of firm Y for any given quantity by firm X. In other words, even though they are the same function, there should be two different lines on the graph. Your submission should include the table, the graph and the answer to the question at the end with description. Please try to think carefully about the description. It shouldn't be long but there is a key idea I want to be sure that you get. One sentence should be enough if you get the thing.

CHALLENGES
ay
400, or 600 gallons of
out the profit-maximizing
ever,
spring water.Then, figure
amount of
produce in response. Fill in
spring
the
the table.
then Firm X should
..
If Firm Y produces
O gal
produce..
how a spring water
200 gal
duopoly example.
400 gal
orher firm is going to produce. Also, the firm
600 gal
basically assume that ônce the other firm
What you have just constructed is what
economists would call Firm X's reaction function
change its decision.
Here's an example. Suppose the market
demand curve for gallons of fresh spring water
ent choices Firm Y could make, Firm Y is pot
actually going to choose just any random level
of output. In fact, Firm Y has its own reaction
function, where it considers how best to respond
to what it thinks Firm X is doing. Because both
firms have the same zero marginal cost, the two
looks like the one in the next table and, to koe
things simple, the marginal cost of spring water
produce 100 gallons of spring water,
then Firm X knows that if it produces 0 gallons.
the price will be $2.75; if it produces 100 gal-
lons, the price will be $2.50, and so on. Basically,
Firm X will face its own demand curve where
for
example,
reaction functions are symmetrical. (Thus, Firm
Y's reaction function looks the same, only with
"X" and "Y" switched.)
all of the quantities are lower by 100.
Graph the two reaction functions. Do you
no.
notice any points that stand out? Describe why
point represents an equilibrium for both firms.
15. The following diagram shows the monthly
demand for hot dogs in a large city. The mar-
this
Market Demand
Price
Quantity Demanded (gal)
ginal cost (and average cost) is a constant $2 per
hot dog.
$3.00
$2.75
$2.50
Price
$2.25
$2.00
$1.75
$1.50
$4
009
$1.25
2
008
Demand
$0.75
Quantity
(thousands)
006
$0.50
The Market for Hot Dops
000 0

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