Question

The equation Q_A = (1/2)(21 –Q_B) is the reaction function of duopolist A in a Cournot duopoly model because given the value of Q_B, the equation for Q_A gives the best or profit-maximizing level of sales for of oligopolist A. Find the Cournot solution algebraically.

TIPS TO SOLVE:

Both firm’s reaction functions are same (just reverse the subscripts)

Substitute one equation into the other (e.g., replace Q_B with equation for Q_B)

Then plug in number to find other

Answer 1