Economic interpretation of the reaction function
& explain the connection between the reaction function in Cournot competition and the concept of Nash equilibrium
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Reaction function:
• Gives best answer of a firm given any (constant) strategy of the opponents, i.e. it isutility maximizing for the firm assuming the strategies of others are constant.
• The intersection of best answer functions gives a Nash equilibrium, i.e. any Cournot equ. is a Nash equ.
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