a)
P = 16 – 0.1(qF +qB)
Residual demand for Fred:
P = (16 – 0.1qF) – 0.1qB
(b)
Fred’s Profit:
πF = P*qF – MC*qF
πF = ((16 – 0.1qF) – 0.1qB)qF – 4qF
πF = 12qF – 0.1qF^2 – 0.1qBqF
(c) Best response function can be found out by differentiating πF wrt qF:
d πF/dqF = 12 – 0.1*2qF – 0.1qB
Equating to zero:
12 – 0.2qF – 0.1qB = 0
qF = (12 – 0.1qB)/0.2
qF = 60 – 0.5qB
(d) Barry’s Residual demand curve:
P = 16 – 0.1(qF +qB)
Residual demand for Fred:
P = (16 – 0.1qB) – 0.1qF
(e)
Fred’s Profit:
πF = P*qB – MC*qB
πF = ((16 – 0.1qB) – 0.1qF)qB – 4qF
πF = 12qB – 0.1qB^2 – 0.1qBqF
Hi. Please try to post subparts in lot of four.
Thank you!
1. Fred and Barney are fishermen who operate fishing ships out of Nantucket. They own similar...
Consider question 1. Suppose that Fred wakes up earlier than Barney and decides how many pounds of cod to catch and calls the dock manager to tell him how many pounds of cod to bring to dock. When Barney wakes up, he realizes that Fred’s output is already announced, and he has to decide how many pounds of cod to catch accordingly. (a) Write Barney’s best response function (Hint: Similar to what you found in question 1). (b) What is...
2. It was late on Saturday afternoon. As Barney's men pulled up the net for the last time that day he couldn't believe his eyes: there were bluefish in the net. He had accidentally stumbled upon an area populated by bluefish. Barney knew that as soon as he started bringing in bluefish, Fred would find out. There being no sense in keeping the word to himself, he told Fred over their traditional drink at Greta's. Fred popped a cheese ball...