Exercise #2. Suppose a market with two firms, 1 and 2, facing the inverse demand p(Q) = 10-Q where Q = 91 +92. The two f

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Exercise 2 Suppose A Market With Two Firms 1 And 2 Facing The Inverse Demand P Q 10 Q Where Q 91 92 The Two F 1 (55.91 KiB) Viewed 44 times

Exercise #2. Suppose a market with two firms, 1 and 2, facing the inverse demand p(Q) = 10-Q where Q = 91 +92. The two firms incur a marginal cost of production c₁ = C₂ = 2, produce a homogeneous good, and are Cournot competitors. Q4) Draw the firms' best-response functions with q₁ on the vertical axis and 92 on the horizontal axis. Q5) Determine firm 2's quantity at the Cournot equilibrium. Q6) Assume firm 1 adopts a raising rival's cost strategy at the expense of firm 2. While firm 1's marginal cost remains at c₁=2, firm 2's marginal cost increases to c₂ = 4. On the same graph as the one used to answer Q4, show the effect of the raising rival's cost strategy on the firms' best- response functions. • Q7) Determine firm 2's quantity at the new Cournot equilibrium. Q8) Determine the market price at the new Cournot equilibrium.