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7. Two rms with differentiated products are competing in price. Firm A and B face the following demand curves: Q A = 70 ZPA +
7. Two rms with differentiated products are competing in price. Firm A and B face the following demand curves: Q A = 70 ZPA + PB and QB = 120 2P3 + PA respectively. Assume production is costless. a. Give equations for and graph each rm's reaction curve. [2) b. If both firms set their prices at the same time, what is the Nash equilibrium price and quantity for each firm? What is the profit? [3] c. Suppose A sets its price first and then B responds. What price and quantity does each firm set now? (3] c. Compare the prots from part b and c. Is there a first mover advantage in price competition? (2]
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