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    Cournot Duopoly: Determining Equilibrium Price and Quantity

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    Two identical firms compete in a cournot duopoly. The demand faced P= 100-2Q. The cost function firm C(Q)= 4Q. What is Nash equilibrium?

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    Solution Preview

    In Cournot competition firms compete in quantities and tend to maximize their profit. Counot model predicts that firms choose Nash equilibrium.

    q1 = output of Firm A
    q2 = Output of Firm B.

    Total Output Q=q1+q2

    P = equilibrium price

    P=100-2*(q1+q2) = 100-2q1-2q2

    Consider Firm A

    Total Revenue for Firm A, ...

    Solution Summary

    Solution describes the steps to determine equilibrium price and quantity of two identical firms in the case of cournot duopoly.