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Suppose there are two firms in a market who each choose a quantity of output to produce. Firm 1’s quantity is q1, and firm 2’s quantity is q2. Firm 1 chooses their quantity, q1, first. Firm 2 observes q1, and then chooses their quantity, q2. The market quantity is Q = q1 + q2. The market demand curve is given by P = 1000 – 5Q. Also, each firm has constant marginal cost equal to 100. There are no fixed costs. The marginal revenue of Firm 2 is given by: • MR2 = 1000 – 5q1 – 10q2. Also, the following formula will be helpful in finding the expression for Firm 1’s Marginal Revenue: If Total Revenue is given by TR = aq –bq2, then Marginal Revenue = a -2bq.

a) How much output does each firm choose in the Nash equilibrium?

b) What is the market price?

c) How much profit does each firm make?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92197467

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