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Math Help - Best Response Functions & Nash Equilibrium in a Cournot Duopoly

  1. #1
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    Best Response Functions & Nash Equilibrium in a Cournot Duopoly

    Hello! I'm trying to figure out how to find the best response functions and a Nash equilibrium when given a utility (profit) function that has a quadratic in the denominator.

    For example: Consider the following version of a Cournot duopoly. Each firm produces q_i ≥ 0. There is a constant production cost, c. The resulting profit (utility) functions are:

    u_1(q_1,q_2)=q_1/(1+(q_1+q_2)^2) - c

    u_2(q_1,q_2)=q_2/(1+(q_1+q_2)^2) - c

    1) Find the best response function for each firm.
    2) Find a Nash equilibrium or show that there is none.

    Thanks!
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  2. #2
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    taking firm1 as an example
    Differentiate u() with respect to q1, treating q2 as a constant. You'll need to use the quotient rule.

    you'll probably end up with a nasty looking fraction with a quadratic numerator and a messy denominator.

    The "trick" in this type of problem is normally that you can ignore the denominator, you want the first derivative=0 which means the numerator must be zero. Find the value of q1 that makes the numerator zero.

    If you need further help post your entire solution up to the point you get stuck.
    Last edited by SpringFan25; March 29th 2011 at 04:49 AM.
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