Question
please answer all parts Suppose there are two firms (called A and B) that compete ala Cournot. Market demand is P = 150 - (QA+QB)).
please answer all parts
Suppose there are two firms (called A and B) that compete ala Cournot. Market demand is P = 150 - (QA+QB)). Let marginal costs be MCA = 50 and MCB=50 (hence costs = 50Q). a) Suppose firm B sets QB = 0. What is firm A's marginal revenue, optimal output, market prices, and (monopoly) profits? b) Confirm that, if firm B sets its output to QB = 200, then optimal QA = 0. Explain. c) Write out firm A's reaction function (as a function of QB). Confirm that QA = 100 - QB. d) Sketch both firm's reaction functions. They will be symmetric since the firms have identical costs. e) Find the Cournot Nash Equilibrium outputs QA and QB. f) Show that total profits (A + B) in the Cournot equilibrium are less than if they acted as a monopoly. Explain.
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