Answered: 1) Obtain the reaction function of the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

There are two firms in the market (duopoly). These two firms are competing
simultaneously. The first firm chooses its output level (x) by predicting the second firm’s
output (y). Let c denote the total cost function c(x) = x and c(y) = y. Also, let’s assume
that the inverse demand function is p(Y) = 7 - Y where Y = x + y. (1) Obtain the reaction
function of the first firm. (2) Find the equilibrium (output and profit of each firm) when
two firms simultaneously compete

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