Question #72183

Assume that the market demand and the costs of the duopolists are p=100-X_(1 ,), where x = x_1 + x_2, and c_(1 )=5x_(1,)and c_(2= )0.5x_2^2 . then
Drive reaction curve for both firms, and draw reaction curves
Calculate cournot equilibrium

Expert's answer

Cournot competition is an economic model used to describe an industry structure in which companies compete on the amount of output they will produce, which they decide on independently of each other and at the same time. The prediction of the model is that the firms will choose Nash equilibrium output levels. To calculate the Nash equilibrium, the best response functions of the firms must first be calculated.

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