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Consider two identical firms in a Cournot competition. The market demand is P = a –...

  1. Consider two identical firms in a Cournot competition. The market demand is P = a – bQ. TC1 = cq1 = TC2 = cq2 .
  1. Find the profit function of firm 1.
  2. Maximize the profit function to find the reaction function of firm 1.
  3. Solve for the Cournot-Nash Equilibrium.
  4. Carefully discuss how the slope of the demand curve affects outputs and price.

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Expert Solution

Rahul Sunny answered 1 year ago
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