You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Qi) = 2Qi, and the inverse demand curve fort his unique product is given by P = 110 − 2Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $60, Taurus Technologies can bring its product to market before Spyder finalizes production plans. Assume Taurus Technologies is the leader in this scenario. (a) What are your profits if you do not make the investment? (b) What are your profits is you do make the investment? (c) Should you invest the $60?
You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two
firms’ products are viewed as identical by most consumers. The relevant cost functions are C(Qi) = 2Qi,
and the inverse demand curve fort his unique product is given by P = 110 − 2Q. Currently, you and
your rival simultaneously (but independently) make production decisions, and the price you fetch for the
product depends on the total amount produced by each firm. However, by making an unrecoverable fixed
investment of $60, Taurus Technologies can bring its product to market before Spyder finalizes production
plans. Assume Taurus Technologies is the leader in this scenario.
(a) What are your profits if you do not make the investment?
(b) What are your profits is you do make the investment?
(c) Should you invest the $60?
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