Suppose a Cournot oligopoly market with n firms has an inverse market demand P =...
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Suppose a Cournot oligopoly market with n firms has an inverse market demand P = 500 Q. All firms are assumed to be identical and have constant MC = 300 and FC = 0. Cournot equilibrium profit for firm i is = (+ )^2/(+1)
a. If a process innovation is available that will reduce MC to 240, find the incentive to innovate, i.e., the maximum amount an oligopoly firm is willing to pay to obtain the innovation, for n =2, 5, and 8.
b. If a process innovation is available that will reduce MC to 200, find the incentive to innovate for n =2, 5, and 8.
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