8 (Cournot Duopoly Model) Lets reconsider Problem 3. The Cournot solution to this situation is obtained as

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8 (Cournot Duopoly Model) Let’s reconsider Problem 3.

The Cournot solution to this situation is obtained as follows:

Firm i will produce qi, where if firm 1 changes its production level from q1 (and firm 2 still produces q2), then firm 1’s profit will decrease. Also, if firm 2 changes its production level from q2 (and firm 1 still produces q1), then firm 2’s profit will decrease. If firm i produces qi, this solution is stable, because if either firm changes its production level, it will do worse. Find q1 and q2.

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