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In: Economics

Consider a Cournot duopoly model. Suppose that market demand is P = a−q1−q2, a > 0. Also suppose that the cost functions of the two firms are TC1(q1) = q21 and TC2(q2) = q22

1. [Cournot Competition - I]

Consider a Cournot duopoly model. Suppose that market demand is P = a−q1−q2, a > 0. Also suppose that the cost functions of the two firms are TC1(q1) = q21 and TC2(q2) = q22

(a) Write the profit function, and the first order condition.

(b) Find out the profit maximizing output for each firm.

(c) Find the profit earned by each firm, total profit earned by the two firms together.

(d) Now assume that the two firms collude and act as a monopoly. Find quantity

sold by the new monopoly firm and the profit earned. Compare the profit earned

by the monopoly with the total profit earned by the two firms in (c).

 

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Expert Solution

Rahul Sunny answered 2 years ago
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