The Inverse Demand for Tacos Is Given by P =

question 145

Essay

The inverse demand for tacos is given by P = 10 - 0.02Q, where P is the price per taco and Q is the total number of tacos brought to market. There are two taco shops in the market. Shop 1's cost function is given by C₁ = 0.01q₁², where q₁ is the number of tacos it brings to market. Shop 2's cost function is given by C₂ = 0.01q₂², where q₂ is the number of tacos it brings to market. Given that the two shops compete by setting output (Cournot), answer the following.
a. Identify shop 1's reaction function to firm 2's output.
b. Identify shop 2's reaction function to firm 1's output.
c. Identify the equilibrium output level of each shop and the equilibrium price for tacos.

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Definitions:

Holder by Negotiation

Holder by negotiation refers to a person who has obtained possession of a negotiable instrument, such as a check, in a manner consistent with the statute's requirements for transfer, thereby acquiring the right to payment.

Involuntary

Occurring without a person's consent or against their will, often referring to actions or processes not chosen by an individual or group.

For Deposit Only

An endorsement on a check indicating that it can only be deposited into an account, not cashed.

Converted

In legal and financial contexts, this refers to the change of one form of property or asset to another, such as converting bonds to stocks or a commercial building to residential use.