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3 Two firms compete in a homogeneous product market where the inverse demand function is P=10 -2Q (quantity is measured in millions). Firm 1 has
3 Two firms compete in a homogeneous product market where the inverse demand function is P=10 -2Q (quantity is measured in millions). Firm 1 has been in business for one year, while Firm 2 just recently entered the market. Each firm has a legal obligation to pay one year's rent of $0.9 million regardless of its production decision. Firm 1's marginal cost is $2, and Firm 2's marginal cost is $6. The 8.57/10 current market price is $8 and was set optimally last year when Firm 1 was the only firm in the market. At present, each firm has a 50 points awarded percent share of the market. Scored a. Based on the information above, what is the likely reason that Firm 1's marginal cost is lower than Firm 2's marginal cost? Book Learning curve effects Limit pricing Direct network externality Second-mover advantage b. Determine the current profits of the two firms. Instructions: Enter all responses rounded to two decimal places. Firm I's profits. $ 21 million Firm 2's profits. $ 0.1 2 million c. What would each firm's current profits be if Firm 1 reduced its price to $6 while Firm 2 continued to charge $8? Instructions: Enter all responses to two decimal places Firm I's profits: $ 71 million
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