In a market that operates under quantity competition, there are 2 firms (Cournot duopoly). The inverse...

 

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In a market that operates under quantity competition, there are 2 firms (Cournot duopoly). The inverse demand function is P = 150-Q. The cost structure of firm 1 is given by C1(q1) = 1,000+ 12 q1 and that of firm 2 is given by C2(q2) = 2,000 -6 q2. Define the profit maximization problem that every firm faces and solve for the best response function. Use this (or the first-order condition directly) to answer the following: 1. The Lerner Index for the market is: Answer Choices A) 0.820 B) 0.843 C) 0.786 D) 0.839 2. The Nash Equilibrium quantity produced by firm 1 q1* is: Answer Choices A) 44 B) 50 C) 60 D) 32 3. The Nash Equilibrium price P* is: Answer Choices A) 50 B) 74 C) 40 D) 56 In a market that operates under quantity competition, there are 2 firms (Cournot duopoly). The inverse demand function is P = 150-Q. The cost structure of firm 1 is given by C1(q1) = 1,000+ 12 q1 and that of firm 2 is given by C2(q2) = 2,000 -6 q2. Define the profit maximization problem that every firm faces and solve for the best response function. Use this (or the first-order condition directly) to answer the following: 1. The Lerner Index for the market is: Answer Choices A) 0.820 B) 0.843 C) 0.786 D) 0.839 2. The Nash Equilibrium quantity produced by firm 1 q1* is: Answer Choices A) 44 B) 50 C) 60 D) 32 3. The Nash Equilibrium price P* is: Answer Choices A) 50 B) 74 C) 40 D) 56

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To solve this problem we need to find the best response function for each firm in the Cournot duopoly and then determine the Nash equilibrium quantity ... View the full answer