Question: QUESTION 9 A homogeneous products duopoly faces a market demand function given by P-a-Q, where Q …

30 Apr Question: QUESTION 9 A homogeneous products duopoly faces a market demand function given by P-a-Q, where Q …

Posted at 22:45h in 2Past Paper by Exams

QUESTION 9 A homogeneous products duopoly faces a market demand function given by P-a-Q, where Q Q1 + Q2 and a-300. Both firms have constant marginal costs MC-100. There are no fixed costs a) What is firm 1’s optimal quantity given that firm 2 produces an output of 50 units per year? And what is frm’s 1 quantity if firm 2 produces 20 units? 4 marks) b) Derive the equation of each firm’s reaction function and provide a graphical explanation to comment your results 4 marks) c) What is the Cournot equilibrium quantity per firm and price in this market? (6 marks d) What would be the market equilibrium quantity and price if the two firms were 8 marks) perfectly competitive? Please comment results comparing them to the ones obtained in the Cournot equilibrium e) What are the Cournot equilibrium quantities and industry price if both firms marginal costs decrease to MC-90 [8 marks]

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