Two firms sell identical products and compete as Cournot (price-setting)competitors in a market with a demand of p = 150 - Q.Initially,each firm has a constant marginal and average cost of $3 per unit of output.
a.Compute each firm's best response function.Plot each of these functions on a graph with q₁ on the horizontal axis and q₂ on the vertical.
b.Compute the Cournot equilibrium quantities.
c.Suppose that firm 1's cost rises to $4 per unit and firm 2's decreases to $2.On a graph,show how this will change the best response functions.How will the equilibrium change according to the changes you made on the graph?

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The Answer of Two firms sell identical products and compete as Cournot (price-setting)competitors in a market with a demand of p = 150 - Q.Initially,each firm has a constant marginal and average cost of $3 per unit of output. a.Compute each firm's best response function.Plot each of these functions on a graph with q₁ on the horizontal axis and q₂ on the vertical. b.Compute the Cournot equilibrium quantities. c.Suppose that firm 1's cost rises to $4 per unit and firm 2's decreases to $2.On a graph,show how this will change the best response functions.How will the equilibrium change according to the changes you made on the graph?

Two Firms Sell Identical Products and Compete as Cournot (Price-Setting)competitors