Suppose the market demand is given by: Q=125-25P and that MC is equal to zero. There...

Suppose the market demand is given by: Q=125-25P and that MC is equal to zero. There are no fixed costs. Solve (a)-(d) as a Cournot model.

(a). Write down the profit maximization function for each firm.

(b). Calculate the FOC’s and find the best response functions (BR1(q2) and BR2(q1))

(c). Describe what a “best response function” is in words. What must be true for best responses at the Nash equilibrium?

(d). Calculate the Nash equilibrium (quantities) in this market and the profits for each firm.

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Expert Solution

Rahul Sunny answered 2 years ago

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