Consider a two-firm oligopoly facing a market inverse demand curve of P = 100 - 2(q₁ + q₂), where q₁ is the output of Firm 1 and q₂ is the output of Firm 2. Firm 1's marginal cost is constant at $12, while Firm 2's marginal cost is constant at $20. In Cournot equilibrium, how much output does each firm produce?

Question

Quizplus · Accepted Answer

In Cournot equilibrium, each firm chooses its output to maximize profit given the output of the other firm. Solving the reaction functions for both firms considering their marginal costs, we find q₁ = 16 and q₂ = 12.

Consider a Two-Firm Oligopoly Facing a Market Inverse Demand Curve