A firm is the sole producer of two goods labelled 1 and 2. The demand functions are

Question:

A firm is the sole producer of two goods labelled 1 and 2. The demand functions are
given by
where Qi and Pi denote the quantity demanded and price of good i, respectively. The total
cost function is
(a) Are these goods substitutable or complementary?
(b) Show that the profit function is given by
(c) Find the values of Q1 and Q2 which maximise the profit and verify that the secondorder conditions for a maximum are satisfied.
(d) Find the prices that the producer should charge to maximise profit.