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There are 2 firms in an industry producing identical products. the market inverse demand curve is
P(Q) = 1-Q
where Q= q1+q2. The total cost functions for the 2 firms are TC(q1)= c1q1 and TC(q2)=c2q2

a) derive each firm's best response runction
b) find the cournot equilibrium
c) what is the profit of each firm under the Cournot equilibrium?
d) now suppose the game is dynamic: both firms choose quantities but now they do so sequentially rather than simultaneously. Firm 1 moves first and chooses its output level. Firm 2 moves next. Also suppose that c1=c2=0. what is the equilibrium in this case? Is there a first-move advantage in this game? (compare profits between the two firms)
e) how do the profits under the dynamic game above compare to the Cournot game when c1=c2=0?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941099

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