Question
Consider a one-shot game where two firms (firm 1 and firm 2) produce a homogenous product and choose output simultaneously. The market's inverse demand function
Consider a one-shot game where two firms (firm 1 and firm 2) produce a homogenous product and choose output simultaneously. The market's inverse demand function is given by P=42-2Q, where P is the market price and Q equals total output (q1+q2). Costs for both firms are given by C=2Q, indicating marginal cost is constant and equal to $2/unit. Figure 2 contains an illustration of a firm's best-response function for the game.
a. Which firm's best-response function is illustrated below? In your answer provide a definition of a best-response function, and include a discussion of the end points.
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