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linear demand function for the two good… Show more Two fir

Paper help Economics linear demand function for the two good… Show more Two fir

Economics

linear demand function for the two good… Show more Two fir

linear demand function for the two good… Show more Two firms, A and B, produce goods A and B, respectively. The linear demand function for the two goods are respectively, Qa = 100 – 4Pa + 1.5Pb Qb = 120 – 2Pb + 0.5Pa Production costs are given by Ca (Qa) = 2Qa and Cb (Qb) = 3Qb The two firms engage in a price war. A) Derive the equations for the best response functions for each firm B) Sketch a graph of the best response functions C) If firm A expects firm B to set its price at $20, what is firm A’s best response? If firm B predicts that firm A will price good A at $36, what is firm B’s best response? D) What is the NASH EQUILIBRIUM price and quantity for each firm? E) How much profit does each firm earn in Nash Equilibrium? • Show less

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