Cournot%20Example

# Cournot%20Example - & 1 q 1 q 2 [email protected] 1 =[100&(0 5 ± q...

This preview shows page 1. Sign up to view the full content.

Economics 3130 Cournot Duopoly: a numerical example The Model p = 100 (0 : 5) ± [ q 1 + q 2 ] : the inverse demand function. C 1 = 5 ± q 1 : the cost function of duopolist #1; C 2 = (0 : 5) ± q 2 2 : the cost function of duopolist #2; Verify that the reaction functions of the duopolists are given by: q 1 = 95 (0 : 5) ± q 2 :::::::: (1) and q 2 = 50 (0 : 25) ± q 1 : :::::::: (2) The Cournot equilibrium solution is given by ( q 1 ; q 2 ) = (80 ; 30) : The equilibrium price p = 45 1 = 3200 2 = 900 Given q 2 ; 1 ( q 1 ; q 2 ) = p ± q 1 5 ± q 1 = f 100 (0 : 5) ± [ q 1 + q 2 ] g ± q 1 5 ± q 1 :::: (3) 1 ( q 1 ; q 2 ) 1 = 0 ; @ 2 1 ( q 1 ; q 2 ) 2 q 2 1 < 0 : Now, from (3), we have
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: @ & 1 ( q 1 ; q 2 ) [email protected] 1 = [100 & (0 : 5) ± [ q 1 + q 2 ]] ± 1 & (0 : 5) ± q 1 & 5 = 0 :::::: (4) Simplify and get (1). Verify the second order condition @ 2 & 1 ( q 1 ; q 2 ) [email protected] 2 q 2 1 = & 1 < : Given (1) and (2), q 2 = 50 & (0 : 25) ± [95 & (0 : 5) ± q 2 ] Solve and get q & 2 = 30 : Now, from (1) get q & 1 = 80 : p & = 100 & (0 : 5) ± [ q & 1 + q & 2 ] = 45 & & 1 = [100 & (0 : 5) ± 110] ± 80 & 5 ± 80 = 3200 : Complete the other calculations. 1...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online