The Inverse Demand for Designer Blankets Is Given by P

question 158

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 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. 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 blankets.

---

Definitions:

Subcontrary Propositions

In traditional logic, propositions that cannot both be false but can both be true.

Existential Import

The assumption within a statement that asserts the existence of the subject matter it mentions.

Affirmative Subalternate

A proposition that is universally affirmative, implying a particular affirmative proposition as well.

Subcontraries

In the traditional square of opposition, a pair of propositions that, in virtue of their logical form, could both be true but could not both be false (I and O).