Economic Analysis Part 2/6

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  1. Cournot  Oligopoly.    SupposetwoCournotfirmsfacethefollowinginversedemandP=12−2q1−q2    wherecostfunctionsforfirm1is3q1    andforfirm2is4q2.
    1. Findeachfirm’sreactioncurveandsolvefortheCournot-Nashequilibrium.

B.Findthetotalmarketprofit(sumprofitsfrombothfirms)

 

  1. Characterizeanequilibriuminwhichonlyonefirmproducesbutwherethere arepositiveeconomicprofits.Findtheprice,theoutputlevel,andtotalprofits. [Hint:    thinkcarefullyabout which firmoptimallyremainsinthemarketand howtheotherfirmneedstobecompensatedtostayoutof themarket]

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