The Inverse Demand for Designer Blankets Is Given by P

question 26

Essay

The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the local market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot):
a. write shop 1's profit function. Let Q = q₁ + q₂.
b. write shop 2's profit function.

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