Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Business Economics Expert

The inverse demand curve for widgets is P = 130−2Q. There are two firms, A and B, who produce widgets. Each firm has a constant marginal and average cost of producing the good that equals 10. Firms compete in quantities and they make their quantity choices simultaneously (Cournot competition). Firms can choose any quantity to produce.

(a) Write down the profit function of each firm.

(b) Find the best-response function of each firm. Remember that to compute this, you need to differentiate firm i’s profit function with respect to qi , assuming that q−i is held constant, where q−i is the quantity produced by firm i’s rivals. Once you have the first-order condition, solve for qi as a function of q−i , marginal costs and demand parameters (i.e., the 130 and the 2 of the demand function).

(c) Plot the best response functions of both firms. In your graph, put qA in the horizontal axis and qB on the vertical axis.

(d) What is the Cournot-Nash equilibrium? You need to solve the system of equation characterized by the two first-order conditions. Show the equilibrium graphically.

(e) Suppose there are three firms (instead of two). Each firm still has constant marginal and average cost equals 10 and they compete in quantities. What is the Cournot-Nash equilibrium in this case? To solve for the NE you need to re-do the first two questions of this problem, now with three firms.

(f) Suppose again that there are only two firms, but now firms have different costs. In particular, firm A has constant marginal and average cost equals 10, whereas firm B has constant marginal and average cost equals 34. What is the Cournot-Nash equilibrium in this case? Note that, as we did in class, when firms have different marginal costs, the only way to solve for the NE is to replace one best-response in the other.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91421577

Have any Question?


Related Questions in Business Economics

Describe five changes in the vaiables that will cause

Describe five changes in the vaiables that will cause demand for a product to increase, shifting the demand curve to the right?

A farm has two types of trees 30 are orange trees o and 70

A farm has two types of trees: 30% are orange trees (O) and 70% are apple trees (A). Frost (F) has damaged 40% of the orange trees (F|O)=0.4 and 10% of apple trees. What is the probability that a randomly selected tree w ...

Use the following information to answer the next eight

Use the following information to answer the next eight exercises. Groups of men from three different areas of the country are to be tested for mean weight. The entries in the table are the weights for the different group ...

Link changes in unemployment inflation wages and gdp to one

Link changes in unemployment, inflation, wages, and GDP to one another and how they impacted each other during periods of economic decline (recessions) and periods of economic growth (expansion) over the past 10 years.

My null hypothesis relates to shipping costs being higher

"My null hypothesis relates to shipping costs being higher for critical orders than low priority orders. So u1 - u2 less than or equal to 0 is null hypothesis and right-tailed t-test. What I am unsure of is which is the ...

What are the classical neoclassical keynesian and marxian

What are the classical, Neoclassical, Keynesian, and Marxian Economic Schools of Thought on poverty and perspectives on individual decisions? Briefly explain their opinions.

Patients are randomly assigned to one of the four treatment

Patients are randomly assigned to one of the four treatment groups to cure a disease: 1) Control 2) Experimental 1 3) Experimental 2 4) Experimental 3 There are 200 patients in the trial; 20 are randomly assigned to the ...

You are given the sample mean and the population standard

You are given the sample mean and the population standard deviation. Use this information to construct the 90% and 95% confidence intervals for the population mean.  A random sample of 44 gas grills has a mean price of $ ...

In an inquiry into the nature and causes of the wealth of

In an inquiry into the nature and causes of the wealth of nations, Adam Smith listed three reasons for productivity to increase with specialization. What are these three reasons?

Fully explain at least one reason why many developing

Fully explain at least one reason why many developing countries suffered serious debt crisis in the early 1980s. Does this reason you explained in debt support Krueger & Srinivasan's argument? Why or why not? How could t ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As