Y5

Duopoly: 1. Consider a duopoly game with 2 firms. The market inverse demand curve is given by P(Q) = 120 - Q, where Q = q1 + q2 and q; is the quantity produced by firm i. The firm's long run total costs are given by C1(q1)=2q1 and C2(q2)=92, respectively. a. Determine the Nash Equilibrium for Cournot competition, in which firms compete based on quantity. What is each firm's best response as a function of the other firm's output? Graph these best response functions in on the same graph. Compute the associated payoffs for each firm. b. Determine the Nash Equilibrium for Bertrand competition, in which firms compete based on price and stand ready to meet market demand at that price. What is each firm's best response as a function of the other firm's price? Graph these best response functions in on the same graph. Compute the associated payoffs for each firm