The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot):
a. identify shop 1's reaction function to firm 2's output.
b. identify shop 2's reaction function to firm 1's output.
c. identify the equilibrium output level of each shop and the equilibrium price for blankets.

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The Answer of The inverse demand for designer blankets is given by P = 40 - 0.01Q, where P is the price per blanket and Q is the total number of blankets brought to market. Two shops in the market supply specialty blankets. Shop 1's cost function is given by C₁ = 0.02q₁², where q₁ is the number it brings to market. Shop 2's cost function is given by C₂ = 0.02q₂², where q₂ is the number it brings to market. Given that the two shops compete by setting output (Cournot): a. identify shop 1's reaction function to firm 2's output. b. identify shop 2's reaction function to firm 1's output. c. identify the equilibrium output level of each shop and the equilibrium price for blankets.

The Inverse Demand for Designer Blankets Is Given by P