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Unformatted text preview: The n-Firm Cournot Market Introduction Suppose n firms each produce a homogeneous product with no costs of production. Let market price be linear in the combined output of all n firms in the market and of the form P = a- b n X i =1 q i where q i is the output of the i-th individual firm. Consider the situation of some firm, j , Firm j must decide how much to produce. If j is a Cournot competitor , it will formulate its plans under the assumption that each of its ( n-1) rivals will continue to produce whatever output they currently produce, no matter what firm j does. Thus, from j ’s point of view, the total output of all firms other than itself — the combined output of all its rivals — is constant. Then from j ’s point of view, market price is related to its own choice of output according to the equation P = a- b n X i =1 i 6 = j q i - bq j . Because j believes the output of his rivals will remain unchanged, this demand curve j faces is of the form P = α...
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This note was uploaded on 04/26/2010 for the course ECON 101 taught by Professor Staff during the Spring '08 term at Vassar.
- Spring '08