If firm a expects firm b to set its price at 20 what is, Ask an Expert

Economics

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?

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Business Economics, Economics

Category:- Business Economics
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