Exercise/Test Chapter 11:

1) When is it relevant to use an Oligopoly model to analyze a market?

2) What do we mean by “Reaction/response function”?

3) Consider a Nash-Cournot solution for a duopoly producing an identical product. The inverse
demand curve the firms face is:

P = 400 – 20Q
where: Q = Q1 + Q2
and the marginal cost; MC = 160 for both firms
a) Calculate the Nash-Cournot equilibrium, the total quantity and the resulting price.
b) Show your result in a graph with the firm’s best-response curves. Note: No need to be exact in
the drawing.