Define the best-response function of a firm

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Let market demand be given by the inverse demand curve P(Q) = 50 - 2Q, where Q = q1 + q2. The cost function for each of the two firms in the industry is C(qi ) = 2qi . Firms are Cournot competitors.

(a) Define the best-response function of a firm. Derive the best-response function of each firm.

(b) Find for each firm in the Cournot equilibrium firm output and firm profits. What is the price that clears the market? Is the outcome efficient?

Reference no: EM13890048

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