The market demand is linear, its inverse is given by P(Q) = a - Q

Economics Feb 06, 2022

The market demand is linear, its inverse is given by P(Q) = a - Q. Both firms have a constant marginal cost. Firm 1's marginal cost is c1, Firm2's marginal cost is c2. Let 91 be the output level of Firm 1, and q2 the output level of Firm 2. If c1 = c2/2 then in the Nash equilibrium of Cournot competition (assume in equilibrium q2 > 0) we will have q1 = 2q2 q1 = 392 q1 = 4q2 q1 = 1.592 Any of the above is possible depending on the value of a.