There are two major producers of corncob pipes in the world, both located in Herman, Missouri. Suppose that the inverse demand function for corncob pipes is described by p = 160 - 3q, where q is total industry output, and marginal costs are zero. What is the Cournot reaction function of firm 1 to the output, q₂, of firm 2?

Question

Quizplus · Accepted Answer

The Cournot reaction function for firm 1 is derived by maximizing its profit given the output of firm 2. With zero marginal costs, firm 1's reaction function is q1 = (160 - 3q2) / 6 = 26.67 - 0.5q2.

There Are Two Major Producers of Corncob Pipes in the World