Economics Now consider a typical Cournot duopoly situation such that the market is being served by two firms (Firm 1 and Firm 2) that simultaneously decide on the level of output to sell in the market, while producing an identical product. The total output of the industry is Q = q1 + q2, where q1 and q2 are the output of Firm 1 and 2, respectively. Each firm has a symmetric cost function: C(q1) = 12 q1 and C(q2) = 12 q2. Calculate the allocative inefficiency resulting from this market structure. Compare it to that under the monopoly market in part (a). What can you say, in general, about the Cournot-Nash equilibrium quantities and prices as the number of sellers (n) competing in the industry rises?

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The total output of the industry is Q q1 q2 where q1 and q2 are the output of Firm 1 ... View the full answer