Consider a market where the inverse demand function is p =100 – Q, Q = q1+q2....

Consider a market where the inverse demand function is p =100 – Q, Q = q1+q2. Both firms in the market have a constant marginal cost of $10 and no fixed costs. Suppose these two firms are engaged in Cournot competition. Now answer the following questions:

a) Define best response function. Find the best response function for each firm.

b) Find Cournot-Nash equilibrium quantities and price.

c) Compare Cournot solution with monopoly and perfect competitive solutions.

Expert Solution

Rahul Sunny answered 2 years ago

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