econ100_winter2010_lecture19_topost

Firm 1 sets mr mc this gives us firm 1s reaction

Info icon This preview shows pages 25–31. Sign up to view the full content.

View Full Document Right Arrow Icon
Firm 1 sets MR = MC This gives us Firm 1’s reaction function Similarly, we can find Firm 2’s reaction function
Image of page 25

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Firm 1 sets MR = MC 240 12Q 2 - 24Q 1 = 120 This gives us Firm 1’s reaction function Q 1 = 5 - .5Q 2 Similarly, we can find Firm 2’s reaction function Q 2 = 5 - .5Q 1
Image of page 26
To find equilibrium outcome, we need q1 * (q2 * ) Q 1 = 5 - .5Q 2 = 5 - .5(5 - .5Q 1 ) Q 1 = 5 2.5 + .25Q 1 Q 1 = 2.5/.75 = 3.33 Similarly, Q 2 = 3.33 Total output = 6.66
Image of page 27

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Once we know total Q, and can use demand function to find equilibrium price P = 240 12(6.66) = 240-80 = $160
Image of page 28
Summary: solving Cournot Duopoly problems Start with market demand, and marginal cost functions for both firms Recall that Q = q1 +q2 Set MR = MC for EACH firm, to find reaction functions Solve for intersection of r.f. to find q1*,q2* Substitute (q1*+q2*) into D to find equilibrium price
Image of page 29

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
How do PC, M & CD compare? Mkt D: P = a-bQ MC = C 1. PC: know that S=D, or, all will set P = MC a-bQ = c, or Q = (a-c)/b 2. Monopoly: will set P = MR MR: a-2bQ = c Q = ½((a-c)/b) 3. Cournot Duop:
Image of page 30
How do PC, M & CD compare? Perfect Competition: know that S=D, or, all will set P = MC a-bQ = c, or Q = (a-c)/b
Image of page 31
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern