Suppose that the reaction functions for two identical Cournot firms are given by the equations q₁ = 50 !3q₂ and q₂ = 50 !3q₁. If the market demand for the output of these two firms is q_T = 125 !5p, the market price of this product is:

Question

Quizplus · Accepted Answer

To find the market price, first, we need to determine the quantities produced by each firm and then the total quantity supplied in the market. The reaction functions are given by $q_1 = 50 - 3q_2$ and $q_2 = 50 - 3q_1$. Solving these equations simultaneously gives $q_1 = q_2 = 12.5$. The total quantity supplied in the market is $q_T = q_1 + q_2 = 25$. Given the market demand equation $q_T = 125 - 5p$, substituting $q_T = 25$ into the demand equation and solving for $p$ gives $p = 20$.

Suppose That the Reaction Functions for Two Identical Cournot Firms