I am currently struggling with an exercise and I hope you can help me.

These are the basic information:

The inverse demand curve is P=a-bQ, while there are four firms competing (Cournot) in this exercise.

The market price is given by 450, while q1=q2=q3=q4=75 (and therefore Q=300).

Profit function of firm 1 and 2: Profit1=(a-bQ)q1-q1²-5000 and Profit2=(a-bQ)q2-q2²-5000

Profit function of firm 3 and 4: Profit3=(a-bQ)q3-cq3 and Profit4=(a-bQ)q4-cq4

As you might see, the costs differ between firm1/2 and firm3/4.

I am missing the four values a, b and c, and I have no idea how to deal with this problem. Does anyone have any advice for me on how to proceed?

Thanks, Peter

  • 4
    $\begingroup$ Why do you need the values of a, b and c? It’s completely normal for solutions of these kind of problems to have some unknown parameters. $\endgroup$ – 1muflon1 Jul 20 at 14:58

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