(Answered) Derive the Cournot Nash equilibrium to game

Economics

Problem: The inverse market demand curve for paper is given by -2Q. There are two firms who produce fax paper. Each firm has unit cost of production equal to , and they compete in the market quan-tities. That is, they can choose any quantity to produce, and they make the quantity choices simulta-neously. Please show steps how you get an answer and please be clear in your explanation.

Required:

Question 1: Show how to derive the Cournot Nash equilibrium to this game. What are the firm's profits in equilibrium?

Question 2: What is the monopoly output, that is the one that maximizes total industry profit? Why isn't pro-ducing one half the monopoly output a Nash equilibrium outcome? Explain and show why

Question 3: Suppose now that firm 1 has a cost advantage. Its unit cost is constant and equal to whereas firm 2 has the higher unit cost of . What is the Cournot outcome now? What are the firm's profits?

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Macroeconomics, Economics

Category:- Macroeconomics
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