Consider the following Cournot oligopoly, there are two identical firms in the industry, which...

Question:

Consider the following Cournot oligopoly, there are two identical firms in the industry, which set their quantities produced simultaneously. The two firms face a market demand curve, {eq}Q=120-P {/eq}, in which {eq}Q=q_1+q_2 {/eq}. Each firm cost function {eq}c_i(q_i)q_i^2 {/eq}. Each firm acts to maximize its own profit.

a. Write down each firm's profit function,

b. From the profit functions, derive a response rule for each player,

c. From the best response rules, find the Nash equilibrium in this market.

Cournot Duopoly:

A Cournot duopoly is an oligopoly competition where there only two firms in the market. The firms compete in the quality of output to produce and each firm chooses its profit-maximizing quantity without knowing the output choice of the other firm.

Answer and Explanation: 1

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a. Write down each firm's profit function,

The demand curve is:

$$\begin{align} Q&=120-P\\[0.3cm] P&=120-Q \end{align} $$

But...

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Oligopoly Competition: Definition & Examples

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Chapter 4 / Lesson 16
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Learn what an oligopoly is and its market effects, and view examples of oligopolies. Understand non-price competition and how oligopolies affect price competition.


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