Question: Please help with question 1 and 2 Consider a quantity-setting oligopoly (Cournot model) where demand is linear and each rm's marginal cost is a constant
Please help with question 1 and 2

Consider a quantity-setting oligopoly (Cournot model) where demand is linear and each rm's marginal cost is a constant c,- for each rm i. The demand function is P = a b(q.,; + q_1-), where the subindex i denotes rm i's own production while subindex 2' denotes the combined production of all other rms in the market. In the simple case of a duopoly we have only (11 and q2. 1. Suppose we're in a duopoly market. On a graph with :11 on the xaxis and qz on the yaxis, draw each rm's best-response function. Label the Nash Equilibrium of the game played by the rms. Note: Remember that best response in a Cournot game species the production of the rm given the production of all other rms in the market in a duopoly, this would be a function of rm 1's production given how much rm 2 produces: q1(Q2). Explain your answer by arguing what happens with this function. 2. Show on the graph how the equilibrium changes as Firm 2's marginal cost decreases. How are the equilibrium quantities for each rm affected
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
