Q. There are two identical firms in an industry. Each firm uses a Cournot strategy to maximize profits. If the best response function of firm one is:
q1(q2) = 300 - q2/2
Find the equilibrium level of production for both Firm 1 and Firm 2
1. There are two identical firms in a market with demand Q(p) = 10 -2p, and cost functionc(q) = 2q for both firms. If Firm 1 believes that Firm 2 will sell q2 =2. By using a Cournot model, calculate the profit maximizing level of production for Firm 1, price, profits for each firm, and consumer surplus
2. Consider an economy with market demand Q(p)=20-2p. There are two identical firms in this economy with constant marginal costs equal to 1 and no fixed costs. Assume that firms set prices and follow a Bertrand model to do so.
What are the price, quantities, and profits for each firm in equilibrium? Assume that the government charges a per unit tax of $1. What are the price, quantities, and profits for each firm in equilibrium? Calculate the deadweight loss of the tax?