Consider a market with two dominant firms (curnot duopoly) producing a homogenous product. The inverse market demand function is given by
Every firm chooses the quantity of production, which maximizes its profit according to the ideas of the possible decisions of the other duopolist. Each duopolist considers the quantity of production of another as a fixed value, which does not depend on his own decisions. Both companies take decisions at one time. According to the Cournot duopoly, the price will depend on the summary quantity of production of both firms. So, demand function is: P=a-b*(Q 1 +Q 2 ), where Q 1 – quantity of production of the first firm, Q 2 – quantity of production of the second firm.