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There are two rms in an industry under the Coumot duopoly model and they sell an identical product with market demand P = 100 Q
There are two rms in an industry under the Coumot duopoly model and they sell an identical product with market demand P = 100 Q where Q = q1 + q2, q1 is the output from Firm 1, and q2 is the output om Firm 2. These rms have identical marginal cost of 10 per unit regardless of output level, M C1 = 10 = M C; . Answer this question according to lecture discussion. (a) Show your step-bystep derivations of the reaction functions R1 and R2 for Firm 1 and Firm 2, respectively. (b) Use a properly-labeled graph to plot the reaction functions in part (a) and prove with numbers (as demonstrated in lecture discussion) that there is a tendency for these rms to converge to the Coumot equilibrium. (c) Use the reaction functions in part (a) and solve for the Coumot equilibrium algebraically. Explanation: (a) 8 marks; b) 12 marks; and (c) 3 marks
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