Consider a Cournot Duopoly with the Following Inverse Demand Function

question 53

Multiple Choice

Consider a Cournot duopoly with the following inverse demand function: P = 50 - 0.2Q₁ - 0.2Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 2.Based on this information firm 1 and 2's reaction functions are

• A)r₁(Q₂) = 4.8 - 0.5Q₁ and r₂(Q₁) = 4.8 - 0.5Q₂.
• B)r₁(Q₂) = 4.8 - 0.5Q₂ and r₁(Q₂) = 4.8 - 0.5Q₁.
• C)Q₁ = 25 - 0.75Q₂ and Q₂ = 25 - 0.75Q₁.
• D)Q₁ = 240 - 0.5Q₂ and Q₂ = 240 - 0.5Q₁.

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Definitions:

Average Total Costs

The per unit cost of production, calculated by dividing the total cost of production by the number of units produced.

Total-Cost Curve

A graph that depicts the total cost of producing different quantities of a good or service, considering both fixed and variable costs.

Increasing Rate

Describes a situation where a quantity or metric, such as inflation, interest rates, or population, is growing over time.

Variable Cost

A cost that changes in proportion to the level of output or activity.