Consider a duopoly where firms compete for market share by setting prices. The firms produce differentiated products and face the following demand functions where q is output and P is the price in dollars. q1 = 100 – 2P1 + 2P2 Demand Function for Firm 1 q2 = 120 – 4P2 + P1 Demand Function for Firm 2Suppose that firm 1 is able to produce output at a constant marginal cost of $30 and that firm 2 is able to produce output at a constant marginal cost of $20. Both firms operate with no fixed costs.Derive the best response function for firm 1.Derive the best response function for firm 2.

Given information: Demand Function for Firm 1: q1 = 100 – 2P1 + 2P2 Demand Function for…

Answered: Consider a duopoly where firms compete…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a duopoly where firms compete for market share by setting prices. The firms produce differentiated products and face the following demand functions where q is output and P is the price in dollars.

q₁ = 100 – 2P₁ + 2P₂ Demand Function for Firm 1

q₂ = 120 – 4P₂ + P₁ Demand Function for Firm 2

Suppose that firm 1 is able to produce output at a constant marginal cost of $30 and that firm 2 is able to produce output at a constant marginal cost of $20. Both firms operate with no fixed costs.

Derive the best response function for firm 1.
Derive the best response function for firm 2.

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