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    Cournot Equilibrium

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    1. The industry demand function facing two oligopolists is p = 100 - 0.5y1 - 0.5y2, where yi is the production of firm i, and p is the price of their homogeneous output. Each firm has a cost function of the form ci = 10yi

    (a) Calculate the Cournot level of output for each firm.
    (b) Calculate the output for each firm when firm 1 is a Stackelberg leader and firm 2 is a follower.
    (c) Calculate the total output that maximises the joint profits of the two firms, and so the output of each firm assuming that this is shared equally.
    (d) Calculate the total industry output when price is set equal to marginal cost.

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    Solution Summary

    Calculate the Cournot level of output for each firm.