Question: Problem 3: Cournot Competition and Price-cost Margin. The demand for a product is Q=aP/2. If there are 4 firms in an industry and marginal cost

Problem 3: Cournot Competition and Price-cost Margin. The demand for a product is Q=aP/2. If there are 4 firms in an industry and marginal cost is MC= 20, then the price in Nash equilibrium is P= 56. What is a?

Hint. Use the formula discussed in class, P MC/ P = 1 /n ,

where n is the number of firms, and is the absolute value of the elasticity of demand.

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