cournot model

# cournot model - deliver to Beta Beta delivers to Alpha Beta...

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Consider trade between two countries, Alpha and Beta. For a special device, there’s only one producer in each country. Each producer takes output of competitor as given and choose their own output to maximize own profit. These two countries have same inverse demand function: P=100-2Q Cost for producer in Alpha to deliver one unit to Alpha market is \$10; Cost for producer in Alpha to deliver one unit to Beta market is \$15; Cost for producer in Beta to deliver one unit to Beta market is \$8; Cost for producer in Beta to deliver one unit to Alpha market is \$12; Assume Alpha delivers x units to Alpha, delivers y units to Beta, Beta delivers u units to Alpha and v units to Beta. a) Set up the four profit maximization problems (i.e., Alpha delivers to Alpha. Alpha
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Unformatted text preview: deliver to Beta, Beta delivers to Alpha, Beta delivers to Beta) b) Through first order conditions, calculate the best response functions of x and y on Alpha market. c) Draw the two lines on a graph, put x on the horizontal axis and y on the vertical axis. d) Find the intersection of the two lines, ie., calculate the value for x and value for y. e) How much is the price of this device in Alpha? f) How much is the profit Alpha producer makes by deliver x units of the product to Alpha? g) How much is the profit Alpha producer makes by deliver y units of the product to Beta? h) How much is the consumer surplus in Alpha? Cournot Model...
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## This note was uploaded on 10/25/2011 for the course ECONOMICS 300 taught by Professor Sani during the Spring '11 term at Rutgers.

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