Consider a version of the Cournot doupoly game (described in earlier exercises), where firms 1 and 2 simultaneously and independently select quantities to produce in a market.
The quantity selected by firm i is denoted qi and must be greater than or equal to zero, for i = 1, 2. The market price is given by p = 100 - 2q1 - 2q2 . Suppose that each firm produces at a cost of 20 per unit. Further, assume that each firm's payoff is defined as its profit.
Is it ever a best response for player 1 to choose q1 = 25?
Suppose that player 1 has the belief that player 2 is equally likely to select each of the quantities 6, 11, and 13.
What is player 1's best response?