Question
The inverse demand for tea is given by P = 8- 0.04 Q , where P is the price per a gram of tea and
The inverse demand for tea is given byP= 8- 0.04Q, wherePis the price per a gram of tea andQis the total number of grams of tea brought to market. There are two tea shops in the market. Shop 1's cost function is given byC1=0.01q1^2, whereq1is the number of grams of tea it brings to market. Shop 2's cost function is given byC2=0.01q2^2, whereq2is the number of grams of teait brings to market. Given that the two shops compete by setting output (Cournot), answer the following.
a) Identify shop 1's reaction function to shop 2's output to within 2 decimal places
q1=_____-______q2
b)Identify shop 2's reaction function to shop 1's output to within 2 decimal places
q2=-q1
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