Comparative statics analysis in the cournot model

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(Comparative statics analysis in the Cournot Model) Assume two firms produce the same homogeneous good, facing the inverse demand function P(q1+q2) = k−q1−q2, where k > 1 is a positive constant, q1 is the quantity produced by firm 1 and q2 is the quantity produced by firm 2. Assume that firms simultaneously choose q1 and q2 and that they both face a constant marginal cost equal to 1/2. a) Find the Nash equilibrium from this game as a function of k. b) How does the equilibrium quantity, equilibrium price and equilibrium profits change as k increases? Explain the economic intuition to these results.

Reference no: EM13896946

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