Suppose two producers of fiberglass parts, Apex and Bflex, are duopolists competing in Cournot competition, where...

Suppose two producers of fiberglass parts, Apex and Bflex, are duopolists competing in Cournot competition, where quantities are chosen before price. Costs MC=ATC=$40 for each firm, and demand is P=200-q.

a. What are the reaction functions for each firm? What is the equilibrium quantity of fiberglass parts? What is the equilibrium price? What profits are earned by each firm?

b. Show a graph of reaction functions, along with the equilibrium quantity. What happens in the graph if Apex develops new technology which lowers their costs to MC=ATC=$30? Show the changes on your graph, and indicate the new equilibrium quantity.

c. Using the original information (with MC=ATC=40 for both), what is the equilibrium quantity and price if Apex is the leader (choosing quantity first) and Bflex is the follower? Is there a first-mover advantage? Explain.

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Rahul Sunny answered 1 year ago

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