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 Summary
Solution describes the steps to determine equilibrium price and quantity of two identical firms in the case of cournot duopoly.
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In Cournot competition firms compete in quantities and tend to maximize their profit. Counot model predicts that firms choose Nash equilibrium.
Let
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, ...
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- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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