In a Cournot duopoly, we find that Firm 1's reaction function is Q₁ = 50 - 0.5Q₂, and Firm 2's reaction function is Q₂ = 75 - 0.75Q₁. What is the Cournot equilibrium outcome in this market? A) Q₁ = 20 and Q₂ = 60 B) Q₁ = 20 and Q₂ = 20 C) Q₁ = 60 and Q₂ = 60 D) Q₁ = 60 and Q₂ = 20

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The Cournot equilibrium is found by solving the two reaction functions simultaneously. Substituting Firm 2's reaction function into Firm 1's reaction function, we get:Q₁ = 50 - 0.5(75 - 0.75Q₁)Q₁ = 50 - 37.5 + 0.375Q₁0.625Q₁ = 12.5Q₁ = 20Substituting Q₁ = 20 into Firm 2's reaction function, we get:Q₂ = 75 - 0.75(20)Q₂ = 75 - 15Q₂ = 60Therefore, the Cournot equilibrium outcome is Q₁ = 20 and Q₂ = 60.

In a Cournot Duopoly, We Find That Firm 1's Reaction