Asked by Mayesha Tanjeen on Jun 11, 2024
Verified
Suppose that the duopolists Carl and Simon face a demand function for pumpkins of Q 16,400 400P, where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $1 for each pumpkin produced.If Carl believes that Simon is going to produce Qs pumpkins this year, then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is RC (Qs)
A) 8,000 Qs/2.
B) 16,400 400Qs.
C) 16,400 800Qs.
D) 4,000 Qs/2.
E) 12,000 Qs.
Reaction Function
A concept in game theory and economics that specifies how one player's strategy changes in response to the strategy of another player.
Demand Function
An illustrative model that displays the amount of a product buyers are prepared and capable of buying at different price levels.
Pumpkins
A plant belonging to the squash family, often used for food, decoration, or as commodities in agricultural markets.
- Measure the equilibrium output level for firms within a Cournot duopoly configuration.
- Enact the Cournot model across distinct market situations and demand formulas.
- Acquire knowledge about reaction functions and their impact on the production decisions of firms.
Verified Answer
XL
Xavier LlamasJun 14, 2024
Final Answer :
A
Explanation :
Carl's reaction function is derived from the demand function by substituting his quantity plus Simon's expected quantity and solving for his optimal output given Simon's production. The correct formula halves the difference between the maximum demand and Simon's production, indicating strategic interdependence in quantities produced.
Learning Objectives
- Measure the equilibrium output level for firms within a Cournot duopoly configuration.
- Enact the Cournot model across distinct market situations and demand formulas.
- Acquire knowledge about reaction functions and their impact on the production decisions of firms.