Question

Consider a duopoly competition for which the inverse demand function and the cost functions of the duopolists are given below:

𝑃(𝑄) = 120 − 𝑄, where 𝑄 = 𝑞₁ + 𝑞₂

𝐶₁(𝑞₁) = 20𝑞₁

𝐶₂(𝑞₂) = 0.25𝑞₂²

a) Compute the reaction functions for each firm. Represent them graphically.

b) Find the equilibrium strategies, the total output, and the equilibrium market price.

c) Compute the marginal revenue at the equilibrium point and the maximum profit of each firm. 

Answer 1

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