If duopoly behaviour is one that is described by Cournot, the market demand curve is given by the equation q = 200 − 4p and both the firms have zero costs, find the quantity supplied by each firm in equilibrium and the equilibrium market price.
Market demand curve Q = 200 − 4p When the demand curve is a straight line and total cost is zero, the duopolist finds it most profitable to supply half of the maximum demand of a good. At P = Rs 0, market demand is Q = 200 − 4 (0) = 200 units If firm B does not produce anything, then the market demand faced by firm A is 200 units. ∴ The supply of firm A = units In the next round, the portion of market demand faced by firm B is  = 100 units ∴ Firm B would supply  = 50 units Thus, firm B has changed its supply from zero to 50 units. To this firm A would react accordingly and the demand faced by firm A will be  = 200 − 50 = 150 units ∴ Firm A would supply =  The quantity supplied by firm A and firm B is represented in the table below. Round Firm Quantity Supplied 1 B 0 2 A  3 B  4 A  5 B  Therefore, the equilibrium output supplied by firm A  Similarly, the equilibrium output supplied by firm B =  units. Market Supply = Supply by firm A + Supply by firm B  Equilibrium output or Market Supply = Q =  units — (1) For equilibrium price Q = 200 − 4p 4p = 200 − Q  p = Rs  Therefore, the equilibrium output (total) is  units and equilibrium price is Rs .
