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In lecture we saw the Cournot competition model for two firms with the same cost function. Now, we are going to consider asymmetric cost functions.

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In lecture we saw the Cournot competition model for two firms with the same cost function. Now, we are going to consider asymmetric cost functions. Assume that demand for a good is given by p = a - bQd (Q is quantity demanded), and that there are 2 firms competing in quantities. Both have no fixed costs and a constant marginal cost. Firm 1 has a marginal cost c1, and firm 2 has a marginal cost c2. We have that a > C1 > C2. Find the reaction functions of firms 1 and 2 in this market: how the optimal quantity produced depends on the quantity produced by the other firm. To verify that you have found the correct reaction functions, compute the optimal q1 if q2 = 100, a = 4, b = 0.01, c1 = 2, and c2 = 1. (Note that this is not necessarily an equilibrium.) 41 =Solve for the quantity produced by each firm and the equilibrium price. To verify that you have found the correct equilibrium, compute qi, q, and p* if a = 4, b = 0.01, c1 = 2, and c2 = 1. 91 =Now, let's go back to the case where all firms have the same cost function. In class we saw the Cournot competition model for two firms. Now, we are going to get you through the Cournot model with three firms. Assume that demand for a good is given by p = a - bQ, and that there are 3 firms competing in quantity with a constant marginal cost c

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