Question 4 Consider a duopoly market with 2 firms. Aggregate demand in this market is given by Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = Q A + Q B , where Q...

Question 4

Consider a duopoly market with 2 firms. Aggregate demand in this market is given by Q = 500 – P, where P is the price on the market. Q is total market output, i.e., Q = Q_A
+ Q_B, where Q_A
is the output by Firm A and Q_B
is the output by Firm B. For both firms, marginal cost is given by MC_i
= 20, i=A,B. Assume the firms compete
a la
Cournot.Note that marginal revenue for both firms is given by  MR_A=500-2Q_A-Q_B,  MR_B=500-Q_A-2Q_B.

Describe what a best-response curve is and how to find it.

Derive the best-response function for each firm.

What are the equilibrium quantities?

What is the total quantity supplied on this market?

What is the equilibrium price in this market?