How Do You Make A Reaction Function?

What is Cournot equilibrium?

Definition: The Cournot model of oligopoly assumes that rival firms produce a homogenous product, and each attempts to maximize profits by choosing how much to produce.

All firms choose output (quantity) simultaneously.

The resulting equilibrium is a Nash equilibrium in quantities, called a Cournot (Nash) equilibrium..

What is a reaction function?

It is a reaction function since it describes what Firm One’s reaction will be given the output level of Firm Two. This equation represents the strategic interactions between the two firms, as changes in Firm Two’s output level will result in changes in Firm One’s response.

What is a reaction function in economics?

A reaction curve RC, also called reaction function or best-reply function, is the locus of optimal, i.e. profit-maximizing, actions that a firm may undertake for any given action chosen by a rival firm.

What is oligopoly reaction function?

DIAGRAMATIC REPRESENTATION. The best response function (also known as reaction function) shows the optimal (i.e., profit-maximizing) output q1 as a function of q2. It is implicitly defined by the first order condition for firm 1: P'(q1 + q2)q1 + P(q1 + q2) – C1′(q1) = 0.

What is the best response function?

In game theory, the best response is the strategy (or strategies) which produces the most favorable outcome for a player, taking other players’ strategies as given (Fudenberg & Tirole 1991, p. 29; Gibbons 1992, pp. 33–49).

What are reaction curves?

A reaction curve RC, also called reaction function or best-reply function, is the locus of optimal, i.e. profit-maximizing, actions that a firm may undertake for any given action chosen by a rival firm.

What is a reaction function in Cournot duopoly model?

The Cournot duopoly model offers one view of firms competing through the quantity produced. … The Cournot reaction function describes the relationship between the quantity firm A produces and the quantity firm B produces.

What is Cournot model in economics?

Cournot competition is an economic model describing an industry structure in which rival companies offering an identical product compete on the amount of output they produce, independently and at the same time. It is named after its founder, French mathematician Augustin Cournot.