Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q.)=30 + 10Q; and Firm 2 has the cost function TC(Q.)=15+ 20Q. 1) Write down the Profit function of Fim 1: Profit function of Fim 2: 2) The profit functions in part (1), obtain the reaction function of Firm 1 to Firm 2. 3) Using the profit functions in part (1), obtain the reaction function of Firm 2 to Firm 1. 4) Using the reaction functions from parts (2) and (3), obtain the profit maximizing output level of Firm 1. 5) Using the result from part (4), obtain the profit maximizing output level of Firm 2. 6) Now assume that the firms engage in a sequential quantity competition with Firm 1 as the first mover. Construct the profit function of Firm 1. 7) Using the profit function from part (6), obtain the profit maximizing output level of Firm 1. 8) Obtain the profit maximizing output level of Firm 2.

Assume that two firms are in a Cournot oligopoly market. Market demand is P=120 - Q where Q isthe aggregate output in the market and P is the price. Firm 1 has the cost function TC(Q.)=30 + 10Q; and Firm 2 has the cost function TC(Q.)=15+ 20Q. 1) Write down the Profit function of Fim 1: Profit function of Fim 2: 2) The profit functions in part (1), obtain the reaction function of Firm 1 to Firm 2. 3) Using the profit functions in part (1), obtain the reaction function of Firm 2 to Firm 1. 4) Using the reaction functions from parts (2) and (3), obtain the profit maximizing output level of Firm 1. 5) Using the result from part (4), obtain the profit maximizing output level of Firm 2. 6) Now assume that the firms engage in a sequential quantity competition with Firm 1 as the first mover. Construct the profit function of Firm 1. 7) Using the profit function from part (6), obtain the profit maximizing output level of Firm 1. 8) Obtain the profit maximizing output level of Firm 2.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 1E

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