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

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question

Firm 1 & Firm 2 are two firms selling souvenirs to tourists. Firm 1 sells magnets and
Firm 2. Assume that Firm 1 is the only firm producing magnets and Fim 2 is the only
firm producing mugs. The daily demand for magnets is given by
Di = 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 for
mugs is given by
Dz = 500/9 – 200/9 P2 + 100/9 P2
MC of magnets is $0.50 per magnets & MC of mugs is $2.00 per mug. Both firms
simultaneously choose their quantities. You may assume that both firms aim to
maximise profits.
a) Calculate the equilibrium price for both products and quantity for both firms.

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