Question: In class, we discussed how merger simulation involved inferring marginal cost from observing demand and market shares. This problem is related. Two firms produce a

In class, we discussed how merger simulation involved inferring marginal cost from observing demand and market shares. This problem is related.

Two firms produce a homogenous good and set quantities simultaneously (that is, they play a static Cournot game). Suppose that demand is Q = 100-P.

What is the inverse demand function?

What are the best response functions? Write them in terms of Q1, Q2, MC1 and MC2.

If both firms pick quantities Q1=Q2=30, what is the marginal cost of each firm?

If firm 1 picks Q1=25 and firm 2 picks Q2=35, what is the marginal cost of each firm?

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