Suppose two Cournot duopolist firms operate at zero marginal cost. The market demand is p = a - bQ. Firm 1's best-response function is

Question

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In a Cournot duopoly with zero marginal cost, each firm's best-response function is derived by maximizing its profit given the output of the other firm. The profit for Firm 1 is π1 = p*q1 = (a - b(Q))*q1 = (a - b(q1 + q2))*q1. To find Firm 1's best-response function, we differentiate π1 with respect to q1, set the derivative equal to zero, and solve for q1 in terms of q2. This process yields q1 = (a - bq2)/2b, which matches choice A.

Suppose Two Cournot Duopolist Firms Operate at Zero Marginal Cost