Question
The inverse demand for fax paper is given by P = 300 - 4Q. There are two firms producing fax paper. Each firm has a
The inverse demand for fax paper is given by P = 300 - 4Q. There are two firms producing fax paper. Each firm has a unit cost of production equal to 60, and make quantity decisions simultaneously.
a. Show how to derive the Cournot-Nash equilibrium to this game. What are firms' profits in equilibrium?
b. Check the industry prot if each rm produces half of the monopoly output. Are firms better o under this plan and is it a Nash equilibrium?
c. Now suppose rm 1 has a cost advantage. Its unit cost is constant and equal to 40 whereas rm 2 still has a unit cost of 60. What is the Cournot outcome now? What are the prots for each firm?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started