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Respond to the question: Raising Competing Firms Marginal Cost?

04/15/2019 10:11 AM by Maya K; Raising Competing Firm's Marginal Cost
4 Competing in quantities
Suppose two firms selling an identical product engage in Cournot competition. There
are 100 potential customers and the industry demand is 100 − p. Firms choose quantities
qi ∈ [0, 50], which leads to a price that equalizes supply and demand. Firms maximize
their profits.

4.2 Raising rivalís costs
Suppose that firm 1 can spend $X to increase the other firmís marginal cost to $20
(leaving its own marginal cost unchanged). Then, given the new costs, the firms choose
their quantities simultaneously. What is the most money (i.e., the largest X), that firm 1
would be willing to spend on this? [Manage messages]