Posted by **jenny** on Sunday, September 7, 2008 at 11:03pm.

Suppose the inverse market demand equation is P = 80 ¡V 4(QA+QB), where QA is the output of firm A and QB is the output of firm B, and both firms have a constant marginal cost of $4 (fixed costs are zero).

(a)Write down the profit equations for firms A and B.

(b)Write down the marginal revenue equations for firms A and B.

(c)Write down the reaction functions for firms A and B.

(d)Graph the reaction functions for firms A and B.

(e)Calculate the Cournot equilibrium outputs for this market. Plot them on the graph.

(f)What is the price charged in this market?

(g)What is the industry output?

(h)Does the result of identical prices charged by the two firms depend on them having identical marginal costs? Explain.

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