Firm 1 & Firm 2 are two firms selling souvenirs to tourists. Firm 1 sells magnets andFirm 2. Assume that Firm 1 is the only firm producing magnets and Fim 2 is the onlyfirm producing mugs. The daily demand for magnets is given byDi = 50/9 – 200/9 P: + 100/9 P2,where P: is the price of magnets and P2 is the price of mugs. The daily demand formugs is given byDz = 500/9 – 200/9 P2 + 100/9 P2MC of magnets is $0.50 per magnets & MC of mugs is $2.00 per mug. Both firmssimultaneously choose their quantities. You may assume that both firms aim tomaximise profits.a) Calculate the equilibrium price for both products and quantity for both firms.

Answer a). profit of firm A: n1 = P₁*D₁ -0.5D₁ => 1 = (P₁ -0.5)*(50/9 - 200/9 P₁ + 100/9

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a) ilculate the equilibrium price for both products and quantity for both firms

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 31P: Return to Figure 9.2. Suppose P0 is 10 and P1 is 11. Suppose a new firm with the same LRAC curve as...

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