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ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two firms produce a homogenous product. Let p denote the product's price. The output level of firm 1 is denoted by q1, and the output level of firm 2 by q2. The aggregate industry output is denoted by Q, Q = q1 + q2. The aggregate industry demand curve for this product is given by p = 200 – Q. a. Assuming that firms are homogeneous with cost function C(qi) = 2qi, derive the best response function for each firm. Show that Cournot-Nash equilibrium output for each firm is symmetric. Find the Cournot-Nash equilibrium aggregate output and price. Verify that given similar cost functions, equilibrium profits for each firm is symmetric as well. Assuming that firms are heterogeneous with unit cost for firm 1 is 2 and the unit cost for firm 2 is 4, show that firm 1 will produce more than firm 2. Find the Cournot-Nash equilibrium aggregate output and price. Verify as well that firm 1 earns a higher profit than firm 2.
Transcribed Image Text:Two firms produce a homogenous product. Let p denote the product's price. The output level of firm 1 is denoted by q1, and the output level of firm 2 by q2. The aggregate industry output is denoted by Q, Q = q1 + q2. The aggregate industry demand curve for this product is given by p = 200 – Q. a. Assuming that firms are homogeneous with cost function C(qi) = 2qi, derive the best response function for each firm. Show that Cournot-Nash equilibrium output for each firm is symmetric. Find the Cournot-Nash equilibrium aggregate output and price. Verify that given similar cost functions, equilibrium profits for each firm is symmetric as well. Assuming that firms are heterogeneous with unit cost for firm 1 is 2 and the unit cost for firm 2 is 4, show that firm 1 will produce more than firm 2. Find the Cournot-Nash equilibrium aggregate output and price. Verify as well that firm 1 earns a higher profit than firm 2.
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