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Cournot’s model of oligopoly - page 4 / 38

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So when q2 is small, optimal output of firm 1 is (α c q2)/2. As q2 increases this output decreases until it is zero. It is zero when q2 = α c.

Best response function is: b1(q2) = ( α c q 2 ) / 2 0

if q2 α c if q2 > α c.

Same for firm 2: b2(q) = b1(q) for all q.

q2

αc

αc 2

b 1 ( q 2 ) b 2 ( q 1 )

0

αc 2

αc

q1

4

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