Question

Exercise 5: Two oligopolistic firms compete in the same market as in Exercise 1 where the demand function is 4800 80p. The two firms can expand their output at a constant marginal and average cost of 305 (1) Fill the second column of table 1 with the values for the market price corresponding to each value of the overall quantity produced in the market. (2) Draw in diagram 1 the marginal cost, the market demand and the marginal revenue at the market level. (3) Fill the second column of Table 2 with the best response output for firm corresponding to the alternative output levels produced by firm 2, reported in the first column. (4) Draw in diagram 2 the best response functions of the two firms: (5) Identity in Table 2 and graphically the Cournot Equilibrium and explain its meaning Table 2 Diagram 1 92 800 BR 88988 4800 4200 3600 3000 2400 1800 1200 1200 1600 2000 2400 600 / 1800 3000 4200 1200 2400 3600 4800 Diagram 2 ......... ..... 3200 2800 2400 2000 1600 1200 .. . . . ... . 400 400 1200 2000 2000 800 1000 2400 3200

Answer 1

1) Q=4800-P{ market demand}

P=60-Q/8 { indirect demand}

(45e 1 4 Иgovo Чоор 1.5 1600 15 ооо 22.S 2Чоо Зо 1&oo 3+.5 12.00 ч боо S. 3 obo

2)

3M Rave - MC cusut Demandeuse 4800 duentity

3)P=60-Q/80

P=60-q1/80-q2/80

MR1=60-q1/40-q2/80

MC1=30

MR1=MC1

60-q1/40-q2/80=30

Q1=1200-0.5Q2 { best response function of firm 1}

Чоо "доо Lроо Воо 300 1200 Коо 16оочоо 2000 2 гоо 249) О

4)

lim bestrespons of 2 22 1208 fresponse of fima 123 2400

5)

bestoesponses H mresponse A obotno ima s goo 139, 2400

Чоо Хоо 12оо 1 Goo оооо (доа Lроо goo Коо чоо 2 рво 2 ЧО