Two firms compete in selling homogeneousgoods. They choose their output levels q1and q2 simultaneously and face demandcurve P=80-6Q, where Q=q1+q2.The total cost function of firm 1 is C1=8q1and the total cost function of firm 2 isC2=32q2+2/3.a) Find and draw the reaction curves of thetwo firms.b) Compute equilibrium quantities, priceand profits.Suppose now that firm 2, thanks to atechnological innovation, becomes moreefficient. The new total cost function offirm 2 is C2=8q2c) Compute the new equilibrium quantities,price and profits.

We are given: P = 80 - 6Q (Demand function) where Q = q1 + q2C1 = 8q1 , C2 = 32q2 + 2/3 MC1 =…

Two firms compete in selling homogeneous goods. They choose their output levels q1 and q2 simultaneously and face demand curve P=80-6Q, where Q=q1+q2. The total cost function of firm 1 is C1=8q1 and the total cost function of firm 2 is

Two firms compete in selling homogeneous goods. They choose their output levels q1 and q2 simultaneously and face demand curve P=80-6Q, where Q=q1+q2. The total cost function of firm 1 is C1=8q1 and the total cost function of firm 2 is

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Two firms compete in selling homogeneous
goods. They choose their output levels q1
and q2 simultaneously and face demand
curve P=80-6Q, where Q=q1+q2.
The total cost function of firm 1 is C1=8q1
and the total cost function of firm 2 is
C2=32q2+2/3.
a) Find and draw the reaction curves of the
two firms.
b) Compute equilibrium quantities, price
and profits.
Suppose now that firm 2, thanks to a
technological innovation, becomes more
efficient. The new total cost function of
firm 2 is C2=8q2
c) Compute the new equilibrium quantities,
price and profits.

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