Cournot Competition Analysis: ACME vs Business
How can we calculate ACME's profit in a Cournot competition scenario?
ACME's profit function is Π_A = (14 - PD) * q_A - 3q_A. ACME's best response function is q_A = 5.5, and Business's best response function is q_B = 5.5. The Nash equilibrium quantities are q_A = 5.5 and q_B = 5.5.
Calculating ACME's Profit in a Cournot Competition
In a Cournot competition scenario where ACME and Business are competing with a homogenous product, ACME's profit (Π_A) can be determined by subtracting the total cost (TC) from the revenue (TR). The revenue is calculated by multiplying the price (P) by the quantity sold by ACME (q_A).
The profit function for ACME is given as: Π_A = (14 - PD) * q_A - 3q_A.
By analyzing the best response functions of ACME and Business, we can find the optimal quantities at the Nash equilibrium point.
Understanding ACME's Profit Calculation
In the Cournot competition model, ACME's profit is a crucial metric to evaluate the firm's performance in the market. By taking into account the inverse demand function, costs, and quantity sold, we can derive the profit function Π_A.
The formula to calculate ACME's profit is: Π_A = (14 - PD) * q_A - 3q_A.
This equation captures the revenue generated by ACME through product sales and subtracts the total cost incurred in production.
Furthermore, analyzing the best response functions of ACME and Business provides insights into their strategic decisions and the resulting Nash equilibrium.