Consider a duopoly market, where two firms sell differentiated prod-ucts, which are imperfect substitutes. The market can be modelledas a static price competition game, similar to a linear city model.The two firms choose prices pi and p2 simultaneously. The deriveddemand functions for the two firms are: D1 (p1, P2)and D2 (p1, P2) = + 2, where S > 0 and the parameter t > 0을 +S+ P2-P12t2tmeasures the degree of product differentiation. Both firms haveconstant marginal cost c > 0 for production.(a) Derive the Nash equilibrium of this game, including the prices,outputs and profits of the two firms.

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Answered: (a) Derive the Nash equilibrium of this…

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(a) Derive the Nash equilibrium of this game, including the prices, outputs and profits of the two firms.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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