Microeconomic Theory 11th Edition by Walter Nicholson,Christopher Snyder

Exercise 3

Let c i be the constant marginal and average cost for firm i (so that firms may have different marginal costs). Suppose demand is given by P = 1 - Q.
a. Calculate the Nash equilibrium quantities assuming there are two firms in a Cournot market. Also compute market output, market price, firm profits, industry profits, consumer surplus, and total welfare.
b. Represent the Nash equilibrium on a best-response function diagram. Show how a reduction in firm 1's cost would change the equilibrium. Draw a representative isoprofit for firm 1.