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pirex pirex
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Posts: 634
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6 years ago
Suppose the demand for pizza in a small isolated town is p = 10 - Q. There are only two firms, A and B, and each has a cost function TC = 2 + q. Determine the Cournot equilibrium.
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Microeconomics

Microeconomics


Edition: 6th
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#1
6 years ago
Firm A's profit is π = [10 - (qA + qB)]qA - 2 - qA. Maximizing with respect to its own output yields qA = 4.5 - qB/2. Similarly, firm B's best response is qB = 4.5 - qA/2. The equilibrium occurs when both firms produce 3 units. Price is 10 - 3 - 3 = 4.
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