An industry has two firms.The inverse demand function for this industry is p = 74 - 4q.Both firms produce at a constant unit cost of $26 per unit.What is the Cournot equilibrium price for this industry?
A)$21
B)$29
C)$42
D)$26
E)None of the above.

Question

Quizplus · Accepted Answer

In Cournot equilibrium, each firm chooses its output level assuming the output of the other firm is fixed. The reaction functions are derived from the profit maximization condition. Solving the reaction functions simultaneously gives the equilibrium quantities. Substituting these quantities into the inverse demand function gives the equilibrium price. Here, the equilibrium price is $42.

An Industry Has Two Firms