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Unformatted text preview: the market price, proﬁt levels for each ﬁrm, and consumer surplus at the price and quantity levels. 3. Compare the total surplus generated in the monopoly and oligopoly solutions found in parts 1 and 2. 1 2 Cournot-Nash equilibrium (asymmetric ﬁrms) The inverse market demand is given by P = 230-10 Q . There are two ﬁrms supplying the market with a homogenous product with unit cost of production equal to AC 1 = MC 1 = 50 and AC 2 = MC 2 = 20, respectively. Assume that they do not have any ﬁxed cost. 1. Suppose they compete in the market in quantities (Cournot competition). Show how to derive the Cournot-Nash equilibrium to this game. What are ﬁrms’ proﬁts in equilibrium? What is total welfare? 2. Suppose instead that they compete in prices (Bertrand competition). What is the Bertrand-Nash equilibrium outcome and what are the proﬁts of each ﬁrm? Calculate total welfare. 2...
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This note was uploaded on 03/29/2009 for the course ECON 460 taught by Professor Boyer during the Spring '08 term at Michigan State University.
- Spring '08