Question

7. Two firms compete in a market by selling differentiated products. The demand equations are given by the following equations: P2 qı = 75 – Pi + 2 P1 92 = 75 – P2 + 2 assume that each firm has a marginal cost (and average costs) of O. a. Solve for firm l's best response function. b. Solve for the equilibrium price and quantity. C. Would firm 1 still be able to compete in the market if their marginal costs increased while firm 2's remained at 0?

Answer 1

CLASSTIME/PO.NO Date 9, 75 - P + P2 2 92=75 P2 +P/ 2 ह ㅋ T, = P,9, = 750,-P," + P, P2 or 75-28, + P = 0 P - 75+h OP, P, 150 +12) @ 4 Theo Page = r b - Pe ²+ Pipe diz che P = 150+/ 150+ Pi] 600 + 150 tl P. Similarly 2 فر P2 = 150th 4. Solving P4h 16 TO A PIE 750 15 di-Os=50 Yes join I will still compete but may or loose some merket