Consider two gas stations in a remote village facing the simple linear market demand Q= 300− 5p but have different marginal costs of production, both constant, such that MCx = 20 and MCy = 10 1. Measuring the quantities Qx on the horizontal axis and the quantities Qy on the vertical axis, draw the reaction curves for each of the gas stations. 2. Based on a Cournot equilibrium, find the profit-maximizing quantities Qxand Qy for the two gas stations. 3. Based on your answers to (1) and (2) above, if gas station y decided to produce 175 units, (a) what would be the reaction of gas station x, and (b) how would y, in turn, react to that level of output of x?

Consider two gas stations in a remote village facing the simple linear market demand Q= 300− 5p but have different marginal costs of production, both constant, such that MCx = 20 and MCy = 10 1. Measuring the quantities Qx on the horizontal axis and the quantities Qy on the vertical axis, draw the reaction curves for each of the gas stations. 2. Based on a Cournot equilibrium, find the profit-maximizing quantities Qxand Qy for the two gas stations. 3. Based on your answers to (1) and (2) above, if gas station y decided to produce 175 units, (a) what would be the reaction of gas station x, and (b) how would y, in turn, react to that level of output of x?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.3P

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