Duopoly decisions to produce:
In the duopoly two rail transport firms compete by choosing simultaneously a quantity of production. The inverse market demand function of rail transport is expressed by p = 18 – q, where q = q1 + q2. The production costs of the both firms are identical, for the Firm 1 costs are c1 = 0.5q12 and for the Firm 2 costs are c2 = 0.5q22 .
Produce mathematically the reaction curve, i.e. the quantity of production Firm 1 will produce in the Nash equilibrium with the given market demand and costs and taking into account the behavior of the Firm 2.
Finally, interpretation of results.