Firm 1 and Firm 2 compete by simultaneously choosing quantity. Both firms sell an identical...
Question:
Firm 1 and Firm 2 compete by simultaneously choosing quantity. Both firms sell an identical product in a market with inverse demand {eq}D (Q) = 235 - 3Q {/eq}. Firm i's cost function is {eq}c_i (q_i) = 14 q_i {/eq} and both firms know each other's cost function. They are the only firms supplying this market so {eq}Q = q_1 + q_2. {/eq} Each firm can choose any {eq}q_i \geq 1. {/eq}
a. How many units will each firm produce in equilibrium?
b. What will be the equilibrium price in the market?
c. Suppose the firms were to collude and produce a total quantity that maximises their total profit. That is, the two firms act as a monopolist. What total quantity would they produce?
Cournot Model of Oligopoly:
Developed by French mathematician Augustine Cournot, cournot model of oligopoly is a type of competition where two firms in oligopoly market structure compete on non-price techniques, for instance level of output and marketing. The firms make output or marketing decisions independently, simultaneously and at the same time.
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In Cournot model, firms maximize profit by producing where marginal revenue equals marginal cost. The market output come from both firms:
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Oligopoly Competition: Definition & Examples
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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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