Suppose there are only two firms, firm1 and firm2, in the
market. They both choose
a quantity to produce simultaneously. The market price is
determined by the market
demand:
p =130-(Q1+Q2)
where Q1 is the output quantity of firm1 and Q2 is the output
quantity of firm2. Firm1’s
total cost of production is 10Q1 and firm2’s total cost of
production is 10Q2. That is, both
firms have a constant marginal cost of 10.
Task 1. What’s firm 1’s best response...