managerial economics

Display all calculations and briefly explain your answers.
Question4
Consider a market where two firms are competing in quantities. Suppose that the market inverse demand function is given by:
p= 750 – 15(q1 + q2)

Each firm has zero fixed costs and constant marginal cost of production c.

a)Write out each firms’ profit function, and solve for the two first-order profit-maximization conditions.

b)Use the two first-order conditions to solve for each firms reaction function, and plot these two reaction functions.

c)Suppose firm 1 is the Stackelberg leader in this market. Re-write firm 1’s profit function, and solve for it’s profit maximizing level of output.

d)Solve for the Follower’s (firm2) profit-maximizing level of output. Illustrate

e)The stacklberg equilibrium on your graph in part 4b.

managerial economics

sennachan

Joined September 2008

desktop tablet-landscape content-width tablet-portrait workstream-4-across phone-landscape phone-portrait
desktop tablet-landscape content-width tablet-portrait workstream-4-across phone-landscape phone-portrait

10% off

for joining the Redbubble mailing list

Receive exclusive deals and awesome artist news and content right to your inbox. Free for your convenience.