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There are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 Q. Each firm's cost is 30Q. There are
There are two sellers who compete by choosing quantity (Cournot). The inverse demand is P = 120 Q. Each firm's cost is 30Q. There are no fixed costs. In this market firms decide how much to produce and then price is determined by the market (think of fishing boats, for example).
(b) Suppose that Firm 1 produces 30. Then the inverse demand facing Firm 2 is P = 120 30 Q2 = 90 Q2. This implies that Firm 2's marginal revenue is 902Q2. How much will Firm 2 produce to maximize its profits?
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