Return to our Cournot competition model with two firms. Suppose now that the products aren't quite...

Transcribed Image Text:

Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = P2 = a - b(q₁ + dq₂) a − b (dq₁ +92) where d is some number between 0 and 1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d = 0 or d 1? = (b) Calculate the equilibrium prices and quantities in this market. Return to our Cournot competition model with two firms. Suppose now that the products aren't quite identical. In fact, both firms face different demand functions, P1 = P2 = a - b(q₁ + dq₂) a − b (dq₁ +92) where d is some number between 0 and 1 that specifies how similar the products are. Everything else about the model remains the same. (a) Calculate the best response functions for each firm. How does the slope of those best responses change with d? What happens when d = 0 or d 1? = (b) Calculate the equilibrium prices and quantities in this market.