9. Two firms compete by choosing price. Their demand functions are q1 = 20 - pi + P2 and q2 = 20 – P2 + P1. Marginal costs are zero a) Suppose the two firms set their prices at the same time. Find the resulting NE. What 2 price will each firm charge, how much will it sell, and what will its profit be? b) Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will it sell, and what will its profit be? c) Suppose there are three ways this game can be played: both firms set price at the same time; firm 1 sets its price first; firm 2 sets its price first. If firm 1 can choose among these options, which would it prefer?

9. Two firms compete by choosing price. Their demand functions are q1 = 20 - pi + P2 and q2 = 20 – P2 + P1. Marginal costs are zero a) Suppose the two firms set their prices at the same time. Find the resulting NE. What 2 price will each firm charge, how much will it sell, and what will its profit be? b) Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will each firm charge, how much will it sell, and what will its profit be? c) Suppose there are three ways this game can be played: both firms set price at the same time; firm 1 sets its price first; firm 2 sets its price first. If firm 1 can choose among these options, which would it prefer?

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

9. Two firms compete by choosing price. Their demand functions are q1 = 20 – pı + P2
and q2 = 20 – P2 + P1. Marginal costs are zero
a) Suppose the two firms set their prices at the same time. Find the resulting NE. What
2
price will each firm charge, how much will it sell, and what will its profit be?
b) Suppose Firm 1 sets its price first and then Firm 2 sets its price. What price will
each firm charge, how much will it sell, and what will its profit be?
c) Suppose there are three ways this game can be played: both firms set price at the
same time; firm 1 sets its price first; firm 2 sets its price first. If firm 1 can choose among
these options, which would it prefer?

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