Duopolymarket.

Let Q₁be the output of the first firm and Q₂be the output of the second firm. Market demand is now given byP = 500 - Q₁- Q₂.

Assuming the second firm has the same cost as firm 1, i.e.,MC₁= MC₂= $50.

Themarginal profit functionsare:

Firm 1 =450 - 2Q₁- Q₂

Firm 2 =450 - Q₁- 2Q₂

If the two firms engage inCournot quantity competition(i.e., they make their output choice simultaneous), can you find out the output that will be supplied by each of these symmetric firms (i.e., both firms have the same cost of production) in the Cournot market equilibrium?

1. Each firm will produce 200 units.
2. Each firm will produce 150 units
3. Firm 1 will produce 175 units and Firm 2 will produce 125 units.
4. I really have no idea