Question

2 Two firms compete in a market by selling differentiated products. The demand equations are given by the following equations: P2 91 = 75 - Pi + P1 92 = 75 - P2 + 2 assume that each firm has a marginal cost (and average costs) of o. a. What market model do we use if each firm competes by simultaneously choosing price? b. Are the two goods substitutes? C. Solve for firm 1's best response function. d. Solve for the equilibrium price and quantity.

Answer 1

are? 2 q2 = 75-P2t Pi da sa 2 choosing puce, then we use the Bert and Magial revene, MRI = ALTRI) 75-2p1th Two firms compete in market by selling diftuentiated products. The demand equations q= 75-pit PL Each firm has a maninal cost (and ourage costs) 07 O a when each firm competes by simultaneously model. Now, demand for good I, Ź yo demond? firm 1 ; for opi q1 = 75-pit P2 P2 2 Now, 091 - ap2 are goods face; as, price of product 2 enmeans, demand for product. I be increases Hices two substitutes of each other Now e 9 = 75-pt P2 2 Total reveme, TRI= P1q1= 75P1-P1² + PIR 2 2 CS Scanned with CamScanner

As, PI= 37.5 +0.25PL =) Py = 37,5 +0.25850) $50 tices equilibuum puce for him 1 is 450 quantity is: q1=75- Pit P - 50 nits =) q =75-50+ 50 2 equilibrium puce for time is $50 quantity sir q2 = 75 - P2 + Pi -75-50 t so 50 mts. CS Scanned with CamScanner