Suppose that firm 1 and firm 2 operate under conditions of constant average and marginal cost but that firm 1’s marginal cost is c1 = 10 and firm 2’s marginal cost c2 = 8. Market demand is Q = 500 − 20P.
(a) Supposee two firms practice Cournot competition, that is, choosing quantities for their identically product simultaneously. Compute the Nash equilibrium quantity.
(b) Compute firms’ prices, profit and market outcome in the Nash equilibrium.