Besanko, Inc., is one of two Cournot dupolists in the market for gizmos. It and its main competitor Schmedders Ltd. face a downward-sloping market demand curve. Each firm has an identical marginal cost that is independent of output. Please indicate how the following will affect Besanko’s and Schmedders’s reaction functions, and the Cournot equilibrium quantities produced by Besanko and Schmedders.
a) Leading safety experts begin to recommend that all home owners should replace their smoke detectors with gizmos.
b) Besanko and Schmedders’s gizmos are made out of platinum, with each gizmo requiring 1 kg of platinum. The price of platinum goes up.
c) Besanko, Inc.’s total fixed cost increases.
d) The government imposes an excise tax on gizmos produced by Schmedders, but not on those produced by Besanko.
