Strategy7Handout - 9/23/2008 1 Imperfect Competition We...

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Unformatted text preview: 9/23/2008 1 Imperfect Competition We consider competition in a market with a linear demand curve: Inverse demand: P P D Q = = 302 ) ( Q P = 302 First think of a monopolist with cost Monopolist seeks to maximize profit: Q Q C 2 ) ( = 2 300 2 ) 302 ( ) ( Q Q Q Q Q Q C PQ = = = 500 , 22 , 152 , 150 2 300 = = = = = M M M P Q Q dQ d Imperfect Competition: Cournot 2 firms, 1 & 2 Each simultaneously brings its quantity to market: Total market quantity: 2 , 1 q q 2 1 q q Q + = Total market quantity: Each has costs: We seek a Nash Equilibrium q q C 2 ) ( = * 2 & * 1 q q Imperfect Competition: Cournot We calculate Firm 1s Best Response Function 1 2 1 )] 2 1 ( 302 [ ) 2 , 1 ( 1 q q q q q q + = 2 1 2 1 1 300 q q q q = 2 2 300 1 1 2 2 300 1 1 q q q q dq d = = = 2 2 300 ) 2 ( 1 1 q q B q = = Imperfect Competition: Cournot Similarly for Firm 2: We seek a NE, so we want 2 1 300 ) 1...
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Strategy7Handout - 9/23/2008 1 Imperfect Competition We...

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