Question: 1 two firms one in spain and the other in...
1. Two firms, one in Spain and the other in France, act as Cournot competitors in supplying mussels to Belgium. The inverse demand for mussels in Belgium is given by p = 100 − 2Q, where Q is the total quantity supplied. The marginal cost for each firm (including shipping) is 25.
(i) Calculate the Cournot equilibrium in Belgium and the profits of the two firms on their exports.
(ii) Now the French government agrees to subsidise French mussel producers at a level of s per unit. Recalculate the Cournot equilibrium and compare it to the equilibrium in part (i). Explain the intuition for this result.