# Two firms produce the same good and compete against each other in a Cournot market. The market...

## Question:

Two firms produce the same good and compete against each other in a Cournot market. The market demand for their product is P = 204 - 4Q, and each firm has a constant marginal cost of $12 per unit. {eq}MR_1 = 204 - 8q_1 - 4q_2. {/eq} Let {eq}q_1 {/eq} be the output produced by firm I, where I = 1,2.

1. Firm 1's reaction function is:

2. In the Cournot equilibrium for this market, each firm will produce _____ units of output, and the market price will be _____.

3. Each firm will earn a profit of _____

## Cournot Model:

In Cournot model, firms compete on the amount of output they will produce.The quantity to be produced by both firms is decided simultaneously and independently of each other.

## Answer and Explanation: 1

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View this answer(1)The profit function of each firm is given by

{eq}\pi_1 = (204-4q_1-4q_2)q_1-12q_1 {/eq}

{eq}\pi_2 = (204-4q_1-4q_2)q_2-12q_2 {/eq}

Differenti...

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Chapter 4 / Lesson 16Learn 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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