Firms operating under cournot competition or cournot market
Course:- Microeconomics
Reference No.:- EM1355

Assignment Help
Assignment Help >> Microeconomics

Question: Suppose three identical firms are engaged in Cournot competition in quantities. They all have marginal costs equal to 40.

Market demand is given by:

P(X) = 200 - X = 200 - (x1 + x2 + x3), where P denotes price, X total quantity demanded, and xi individual demand for firms i = 1,2, and 3.

a) Explain in what type of markets Cournot type competition can occur. Write down the demand curve and marginal revenue curve for firm 1.

b) What is the first order condition for profit maximization for firm 1? Compute the optimum quantity x1* for firm 1 as a function of quantities x2 and x3.

c) Since the firms are identical, symmetrical solutions exist also for the two other firms. Use this to compute the optimum quantity produced (and sold) for each firm.

d) Compute total demand, X, and market price, P. Compute each firm's profit, πi, and the sum total of all profits.


The details about three identical firms operating in Cournot competition are given. The demand curve with marginal revenue, profit maximization, optimum quantity, total demand and market price related questions are answered.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Microeconomics) Materials
The 2014 income statement for Moring Company showed rent expense of $9,500 and wages expense of $8,600. The related balance sheet account balance at year-end last year and thi
Recall that Carson Company has periodically borrowed funds but contemplates a stock or bond offering so that it can expand by acquiring some other businesses. It has contact
Our recent recession seems to demonstrate again that expenditures and incomes depend on each other. If markets do not self adjust, how can a decline in spending lead to a nega
Suppose that the government thinks that gasoline consumption is too high. Suppose the government wishes to decrease gasoline consumption by 20,000 gallons per day. How big an
Wholesale prices were flat in the last quarter and inventory levels rose slightly - Consumer confidence in the latest survey was unchanged from the previous quarter but down f
a) Explain what happens to observed prices in posted offer and double auction markets when there at least two sellers. b) Explain what happens in these two markets as the numb
In spite of significant price increases for gasoline in the last two years, the amount of gasoline consumed has not decreased a lot--does this mean that gasoline is an excepti
In Exhibit I-2, at what quantity does the firm maximize profit? Which of the following is NOT possible when a firm is maximizing its profits? When the firm's output level is z