Draw the reaction functions for both firms

Reference no: EM133219402

Question - Let the market demand be Q = 120 - 2p, where p is the market price and Q is the market output. There are two firms in the market (firm 1 has output q1 and firm 2 has output q2) and their total cost function is C1 = 12q1 and C2 = 12q2, respectively. The two firms are Cournot competitors.

A. Define the Cournot reaction function. Find the Cournot reaction function for each firm.

B. Draw the reaction functions for both firms. (Be sure to label which is which and indicate the value of the reaction functions where they cross the axes).

C. Find the Cournot (Nash) equilibrium firm outputs and market price p.

D. Suppose the two firms decide to collude and form a cartel. How much will the cartel produce?

E. The two firms agree to split the cartel output and profit equally. If firm 1 cheats on the cartel agreement, how much will it produce?

Reference no: EM133219402

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