Economic Analysis Part 1/6

1. Cournot Oligopoly. Suppose there are two identical rms that face the following inverse demand: P = a – Q where Q = q1 + q2; cost functions for both rms are cqi for i = 1; 2.

A. Find each firm’s reaction curve and solve for the Cournot-Nash equilibrium.

B. Find the total market prot (sum profits from both firms)

C. Now suppose there is only one firm in the market; find the monopolist’s output

and profit.

D. Suppose instead the market is competitive and the rms set p = MC; what is

the total market output and total profit?

E. Reflect on the dierences between your answers to part (b), (c), and (d)

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