A particular market is served by two firms. The market demand curve is given by p = 200 - y. Each firm incurs a constant cost per unit of $50. The Cournot reaction function for firm 1 is given by: A)p ^*= (200 - y ^*)- y₁. B)y ^*= 75 - y ^*/2. 1 2 1 2 C)y ^*= 30 - y ^*/2. D)p ^*= 150 - y ^*/2. 1 2 1 2

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The Cournot model assumes that each firm decides its production level to maximize its profit given the output of the other firm. The market price is determined by the total output. The correct reaction function, B, reflects a situation where each firm adjusts its output considering the other firm's output, aiming to maximize profit given the linear demand curve and constant marginal cost. The formula typically involves subtracting half of the rival's output from a term that represents the difference between the market price at zero output and the marginal cost, divided by the slope of the demand curve.

A Particular Market Is Served by Two Firms