A particular market is served by three firms. The market demand curve is given by p = 200 - y. Each firm incurs a constant cost per unit of $40. Firm 3's Cournot reaction function is given by: A)y ^*= (160 - y₁- y₃)/2. B)p ^*= 130 - (p₂+ p₃)/2. 3 3 C)y ^*= (160 - y₁- y₂)/2. D)y ^*= 200 - p₃- y₂- y₁. 3 3

Question

Quizplus · Accepted Answer

Firm 3's reaction function is given by solving for its profit-maximizing output level, given the output levels of the other two firms. Using the Cournot model, the reaction function for Firm 3 is:
yS1U1P1* = (160 - yS1U1B11S1U1B0S1U1B1 S1U1B0- yS1U1B12S1U1B0)/2.
This is the equation given in choice C.

A Particular Market Is Served by Three Firms