1. Suppose there are two firms in an industry, Firm 1 and Firm 2. The demand curve for the product that they sell is P= 1F6 -2Q (whereFis the 7). Q=Q1+Q2.Where Q = total output measured in thousands and Q1and Q2refers to output by Firm 1 and Firm 2 respectively. The cost curves are different for the two firms. Total Cost Curve for Firm 1 is TC1=12Q1and Total Cost for Firm 2 is TC2=20Q2
2. (a)Suppose (as in the Cournot model) that each firm chooses its profit-maximizing level of output on the assumption that its competitor's output is fixed. Find each firm's reaction function and graph them.
3. (b)Calculate the equilibrium price and output for each firm in a Cournot Equilibrium?
4. (c)Find the profit for each firm? Comment on their similarity/difference?