Consider the Coke and Pepsi example discussed in the chapter. a) Explain why each firm's reaction function
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a) Explain why each firm's reaction function slopes upward. That is, why does Coke's profit-maximizing price go up the higher is Pepsi's price? Why does Pepsi's profit-maximizing price go up the higher Coke's price is?
b) Explain why Pepsi's profit-maximizing price seems to be relatively insensitive to Coke's price. That is, why is Pepsi's reaction function so flat?
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a The profitmaximizing price for one firm given the price of the other firm is positively relat...View the full answer
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