Microeconomics 2nd Edition by Douglas Bernheim

Exercise 1

Firms A and B are duopolist producers of widgets. The cost function for producing widgets is C ( Q ) = Q 2. The market demand function for widgets is Q d = 40 - (0.5) P , where Q measures thousands of widgets per year. Competition in the widget market is described by the Cournot model. What are the firms' Nash equilibrium outputs What is the resulting price What do they each earn as profit How does the price compare to marginal cost How do the price and the two firms' joint profit compare to the monopoly price and profit