Answer to Question #148860 in Economics for Faisal Saif

Question

Part 2. Consider an industry comprised of N number of identical Cournot-competing firms. Market demand is given by P=a-bQ, where P is price and Q is total industry output. Note, Q = q1 +q2+q3+…, which then results in Q = Nq (since all N firms are identical, q1=q2=q3-…). Therefore, we can write P = a-bNq. 

For a given firm i, we can write demand as follows: P = a-b(N-1)qj – bqi, where, qj simply refers to any other firm except firm i. It can be shown that firm i’s marginal revenue can be written as follows: MR = P = a-b(N-1)qj – 2bqi. 

1.               Set MR = MC and find firm i’s Best Response Function (RF).

Answer 1

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