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Two firms with differentiated products are competing in price. Firm A and B face the following...

Two firms with differentiated products are competing in price. Firm A and B face the following demand curves: ?? = 70 − 2?? + ?? and ?? = 120 − 2?? + ?? respectively. Assume production is costless.

  1. Give equations for and graph each firm’s reaction curve.

  2. If both firms set their prices at the same time, what is the Nash equilibrium price, quantity, and profit for each firm?

  3. Suppose A sets its price first and then B responds. What price and quantity does each firm set now? Is it advantageous to move first?

  4. Compare the profits from part b and c. Which firm benefits more from the sequential price choosing?

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