Suppose that two firms are cournot competitors

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Suppose that two firms are Cournot competitors. Industry demand is given by P = 200 − q1 − q2, where q1 is the output of Firm 1 and q2 is the output of Firm 2. Both firms face constant marginal and average total costs of $20. Firm 1 is considering investing in costly technology that will enable it to reduce its costs to $15 per unit. What is the most Firm 1 would be willing to pay if it can guarantee that Firm 2 will not be able to acquire it? Assume that initially each firm is in Cournot equilibrium without the new technology.

$333.33

$411.11

$444.44

$366.66

Reference no: EM131392119

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