Two firms designated as Firms A and B operate in a duopoly with the following market...

 

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Two firms designated as Firms A and B operate in a duopoly with the following market demand curve: P = $1,250-Q where P is price and Q is total output in the market (in thousands). The firms produce identical products, have no fixed costs and incur identical marginal cost = $50. A. Derive the output reaction curves for Firms A and B. B. Calculate the Cournot market equilibrium price-output solutions. C. If the firms were able to collude perfectly, what price and quantity should they set? Demonstrate that the firms have an incentive to cheat at this price quantity combination. Two firms designated as Firms A and B operate in a duopoly with the following market demand curve: P = $1,250-Q where P is price and Q is total output in the market (in thousands). The firms produce identical products, have no fixed costs and incur identical marginal cost = $50. A. Derive the output reaction curves for Firms A and B. B. Calculate the Cournot market equilibrium price-output solutions. C. If the firms were able to collude perfectly, what price and quantity should they set? Demonstrate that the firms have an incentive to cheat at this price quantity combination.

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A To derive the output reaction curves for Firms A and B in a Cournot duopoly we assume that each firm chooses its output level to maximize its profit ... View the full answer