Consider a Cournot Duopoly with the Following Inverse Demand Function

question 54

Multiple Choice

Consider a Cournot duopoly with the following inverse demand function: P = 10 - 0.5Q₁ - 0.5Q₂.The firms' marginal cost are identical and given by MC_i(Q_i) = 3.Based on this information firm 1 and 2's reaction functions are

• A)r₁(Q₂) = 7 - 0.5Q₁ and r₂(Q₁) = 7 - 0.5Q₂.
• B)r₁(Q₂) = 14 - 0.25Q₂ and r₁(Q₂) = 14 - 0.25Q₁.
• C)Q₁ = 7 - 0.5Q₂ and Q₂ = 7 - 0.5Q₁.
• D)Q₁ = 14 - 0.25Q₂ and Q₂ = 14 - 0.25Q₁.

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Definitions:

Critical Value

A point on the scale of the test statistic beyond which the null hypothesis is rejected.

Sampling Distribution

A probability distribution of a statistic obtained through a large number of samples drawn from a specific population.

Chi-square Distribution

A probability distribution that arises in statistics as the distribution of a sum of the squares of independent standard normal random variables.

P-value

In statistical hypothesis testing, it represents the probability of observing a test statistic as extreme as, or more extreme than, the value observed under the assumption that the null hypothesis is true.