1. A homogeneous products duopoly, Paper co and Wow Paper Inc, is considering new market in Brazil and it faces a market demand function given P = 300 – 3Q, where Q=Q1 +Q2. Both firms have a constant marginal cost MC = 100.
e) Since Paper Co has timber production for the paper in Amazon, their MC to produce paper would be lower than Wow Paper Inc. What are the Cournot equilibrium quantities and industry price when one firm (Wow Paper Inc) has a marginal cost of 100 but the other firm (Paper Co) has a marginal cost of 90?
f)Support your answer by showing the game table with associated payoff.
E)p=300-3Q1-3Q2
MR1=300-6Q1-3Q2
MC=100
MR1=MC1
200-3Q2=6Q1
Q1=100/3-0.5Q2{ best response of firm 1 with MC=100( wow paper)
MR2=300-6Q2-3Q1
MC2=90
MR2=MC2
210-3Q1=6Q2
Q2=35-0.5 Q1{ best response of paper co}
Putting q1 into q2,
Q2=35-0.5(100/3-0.5q2)
Q2=35-50/3+0.25q2
Q2=(55/3)*1/0.75=(55/3)*4/3=220/9
Q1=100/3-0.5*220/9=100/3-110/9=190/9
Q=220/9+190/9=410/9
P=300-3*410/9=300-410/3=490/3
F)
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