(2) (Assume that s = 0 (there is no subsidy.) (a) Write down firm A’s profit function. (No work required.) (b) Find each firm’s best response function. (You may do this directly or by setting s to zero in your expressions from (1b). (c) Solve for equilibrium outputs (q*A, q*B). You may either use the symmetry in this problem to assume a symmetric solution, or solve for firm B’s best response and solve the two best responses simultaneously. (d) Solve for the equilibrium price. (e) Solve for the equilibrium profits.
(2) (Assume that s = 0 (there is no subsidy.) (a) Write down firm A’s profit function. (No work required.) (b) Find each firm’s best response function. (You may do this directly or by setting s to zero in your expressions from (1b). (c) Solve for equilibrium outputs (q*A, q*B). You may either use the symmetry in this problem to assume a symmetric solution, or solve for firm B’s best response and solve the two best responses simultaneously. (d) Solve for the equilibrium price. (e) Solve for the equilibrium profits.
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.6P
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(2) (Assume that s = 0 (there is no subsidy.)
(a) Write down firm A’s profit function. (No work required.)
(b) Find each firm’s best response function. (You may do this directly or by setting s to zero in
your expressions from (1b).
(c) Solve for equilibrium outputs (q*A, q*B). You may either use the symmetry in this problem to
assume a symmetric solution, or solve for firm B’s best response and solve the two best responses
simultaneously.
(d) Solve for the
(e) Solve for the equilibrium profits.
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