(For students of economics only) Suppose a duopoly where two firms, 1 and 2, select their output q1 and q2 once and independently of one another (i.e. non-co-operatively) in order to maximise their respective profit. Assuming that (a) the price is set automatically by the market according to (the inverse demand) function, and (b) each firm has the same fixed cost (F) and constant marginal cost equal to 10, then show that there exist a pair of quantity strategies which constitute this game’s a unique Nash equilibrium in pure (quantity) strategies. Moreover, show that these strategies are also the game’s unique rationalisable strategies.
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