a-la Cournot. The inverse demand function is: p(Q) = a − bQ, Q being the

total output of the industry (Q =Sigma(n) i=1, qi) and qi being the output of a generic

firm i. Each firm I has the same cost function C = cqi

.

(a) Find the reaction function of a given firm i.

(b) Find the Cournot equilibrium output profit and price for a given firm i.

Hint: all firms are identical therefore in equilibrium their optimal choice is the same.

(c) Assuming now that each firm has to pay a fixed entry cost F, find the size

of the industry, as a function of a, b, c, F, in the case of perfect competition.

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