Find the cournot solution

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Reference no: EM133516355

Assignment:

The inverse market demand for mineral water is P = 100 - Q, where Q is the total market output, and P is the market price. Two firms, A and B, have complete control of the supply of mineral water. Marginal costs are constant and equal to 10 for both firms (i.e., MC1=MC2=10)

1. Find the Cournot Solution.

2. Find an identical output for each firm that maximizes joint profits.

Continuing with the same problem, assume that each firm can choose only two outputs-the ones from parts a and b in question 1. Denote these outputs qa and qb.

1. Compute the payoff matrix showing the four possible outcomes.

2. Now consider firms playing an infinitely repeated version of this game and consider the following strategy for each firm: (i) produce qb in period 1, (ii) produce qb in period t if both firms produced qb in all preceding periods, and (iii) produce qa in period t if one or more firms did not produce qb in some past period. Assume each firm acts to maximize its sum of discounted profits where the discount rate is r. Find the values for rsuch that this strategy pair is a Nash equilibrium.

Reference no: EM133516355

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