1 answer

Only part e 7. There are two firms that compete according to Couro competition. Firm has...

Question:

only part e
7. There are two firms that compete according to Couro competition. Firm has a cofection (n) = 241+5. Firm 2 has a cost funct
7. There are two firms that compete according to Couro competition. Firm has a cofection (n) = 241+5. Firm 2 has a cost function () = 10 + 10. These firms cannot discrimine, there is just one price that is determined by the aggregate demand. The inverse demand equations PQ) = 80- Where total supply + (a) Setup the profit maximisation problem for firm 1 h all commary equation plugged in 2 (6) Solve firm l's profit maximization problem for their best responsequation points) Only part E (e) Setup the peolit mutimisation problem for firm 2 wath all my equatines plugged in 2 points) (d) Solve firm P's profit maximization problem for their best expense pastionele =-1.3 points) (e) Use your best responsequations to mathematically solve for the equilibrium 6.0. and equilibrium price P. (6 points)

Answers

Best response, Firm 1: q1 = 28 - 0.5q2.........(1)

Best response, Firm 2: q2 = 35 - 0.5q1.........(2)

(Part e)

Plugging (2) into (1),

q1 = 28 - 0.5 x (25 - 0.5q1)

q1 = 28 - 12.5 + 0.25q1

0.75q1 = 15.5

q1 = 20.67

q2 = 35 - (0.5 x 20.67) = 35 - 10.34 = 24.66

Q = 20.67 + 24.66 = 45.33

P = 80 - 45.33 = 34.67

.

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