A town has two pie stores, Anna and Beatrice. It costs each store $11 to produce...

A town has two pie stores, Anna and Beatrice. It costs each store $11 to produce a pie. Let P1 denote Anna's price and P2 denote Beatrice's price per pie. Let Q1 and Q2 denote the demand for each store's pies per day. The store's demands are given by:

Q1 = 100- 4P1 + 2P2

Q2 = 100- 4P2 + 2P1

Assuming stores compete in price

1)Write the profit function for Anna’s in terms of each store's strategies.

Write the profit function for Beatrices in terms of each store's strategies.

2)Find the best response functions of each store.

3)Find the Nash Equilibrium of the game assuming firms choose prices simultaneously.

Solutions

Expert Solution

Rahul Sunny answered 3 weeks ago

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