Consider a price competition model with two firms, 1 and 2, whose demand functions are as...

Consider a price competition model with two firms, 1 and 2, whose demand functions are as follows:

Q1 =48−3P1 +2P2 Q2 =80−4P2 +3P1

Each firm incurs costs; C1(Q1) = 8Q1 and C2(Q2) = 13Q2.

a) Write down firms 1’s and 2’s profit functions.

b) Compute and graph firms 1’s and 2’s best response functions as a function of the other firm’s prices.

c) Find the Nash equilibrium of the game.
d) Calculate the profit of each firm in the Nash equilibrium.

Expert Solution

Rahul Sunny answered 2 years ago

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