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The market demand of a cellphone gadget is P = 70 - 2Q. There are only two firms in this market, one operating in Illinois with a marginal cost of $20 and the other operating in Wisconsin with a marginal cost of $10.

(a) Find the Nash equilibrium if the two firms engage in Cournot com- petition. Find the profit for each of the two firms.

(b) In an effort to reduce unemployment, the state of Illinois offers a $10 subsidy for each unit produced in Illinois. However, in order to finance this subsidy, it also levies a lump sum tax of $100 on firms operating in Illinois. Find the new Nash Equilibrium. Does the new policy benefit the local firm? describe.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938416

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