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The inverse market demand for fiberglass insulation is given by P = 800 - 2Q. This is a homogeneous product and there are only two firms who produce fiberglass insulation: American Fiberglass Co. and Benchmark Fiberglass Co., so Q = qA + qB. American has a (constant) marginal cost of production of 100 while Benchmark has a marginal cost of 120. Suppose competition can be reasonably modeled by assuming that firms strategically set quantities, and they make their quantity choices simultaneously. Show how to derive the Cournot equilibrium in this market, and report the resulting levels of production for each firm and market price.

Macroeconomics, Economics

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