Find the cournot equilibrium quantities and price

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Reference no: EM131251189

An industry consists of two Cournot firms selling a homogeneous product with a market demand curve given by P = 100 - Q₁ - Q₂. Each firm has a marginal cost of $10 per unit.

a) Find the Cournot equilibrium quantities and price.

b) Find the quantities and price that would prevail if the firms acted "as if" they were a monopolist (i.e., find the collusive outcome).

c) Suppose Firms 1 and 2 sign the following contract. Firm 1 agrees to pay Firm 2 an amount equal to T dollars for every unit of output it (Firm 1) produces. Symmetrically, Firm 2 agrees to pay Firm 1 an amount T dollars for every unit of output it (Firm 2) produces. The payments are justified to the government as a crosslicensing agreement whereby Firm 1 pays a royalty for the use of a patent developed by Firm 2, and similarly, Firm 2 pays a royalty for the use of a patent developed by Firm 1. What value of T results in the firms achieving the collusive outcome as a Cournot equilibrium?

d) Draw a picture involving reaction functions that shows what is going on in this situation.

Reference no: EM131251189

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