Two Firms Sell Identical Products and Compete as Cournot (Price-Setting)competitors

question 110

Essay

Two firms sell identical products and compete as Cournot (price-setting)competitors in a market with a demand of p = 150 - Q.Initially,each firm has a constant marginal and average cost of $3 per unit of output.
a.Compute each firm's best response function.Plot each of these functions on a graph with q₁ on the horizontal axis and q₂ on the vertical.
b.Compute the Cournot equilibrium quantities.
c.Suppose that firm 1's cost rises to $4 per unit and firm 2's decreases to $2.On a graph,show how this will change the best response functions.How will the equilibrium change according to the changes you made on the graph?

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