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Cournot’s model of oligopoly - page 5 / 38

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Nash equilibrium

P a i r ( q 1 , q 2 ) o f o u t p u t s s u c h t h a t e a c h fi r m s a c t i o n i s a b e s t r e s p o n s e t o t h e o t h e r fi r m s a or c t i o n

q 1 = b 1 ( q 2 )

and

q 2 = b 2 ( q 1 ) :

q2 αc

αc 2

αc 3

. . . . . . . . . . . . . . . . . . . . .. .. . . . . . . . b 1 . . ( q 2 ) b 2 ( q . 1 ) ( . . . . q 1 , q 2 )

  • 0

    αc αc

αc

q1

3

2

or q1 = (α c q2)/2 and q2 = (α c q1)/2. Solution:

q 1 = q 2 = ( α c ) / 3 .

5

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