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Firms 1 and 2 engage in Cournot competition by simultaneously choosing quantities q1 and q2. The market-clearing price is determined by the inverse demand curve
Firms 1 and 2 engage in Cournot competition by simultaneously choosing quantities q1 and q2. The market-clearing price is determined by the inverse demand curve p(Q) = 100 - Q, where Q = q1 + 92. Marginal costs are zero for Firm 1 and co = 20 for Firm 2. A. Write down the firms' profit functions, derive their best response functions 91 = BRI (92) and q2 = BR2 (q1 ), and plot the latter on a well-labeled best- response diagram. B. Solve for the Nash equilibrium quantities of and q, price, and profits. Briefly explain (no new math) how and why i and total welfare would be different if the firms competed in prices rather than in quantities
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