Find the inverse demand in this market.   Note that marginal revenue for both firms is given by MRA=500-2QA-QB, MRB=500-QA-2QB.        2.Describe what a best-response curve is and how to find it.      3. Derive the best-response function for each firm.

Consider a duopoly market with 2 firms. Aggregate demand in this market is given by

Q = 500 – P,

where P is the price on the market. Q is total market output, i.e., Q = QA + QB, where QA is the output by Firm A and QB is the output by Firm B. For both firms, marginal cost is given by MCi = 20, i=A,B.

Assume the firms compete a la Cournot.

  1. Find the inverse demand in this market.

 

Note that marginal revenue for both firms is given by

MRA=500-2QA-QB,

MRB=500-QA-2QB.

 

     2.Describe what a best-response curve is and how to find it.

     3. Derive the best-response function for each firm. 

     4. What are the equilibrium quantities? 

     5. What is the total quantity supplied on this market? 

     6. What is the equilibrium price in this market? 

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