Question
I. Consider two firms, 1 and 2. each producing an identical good simultaneously. Tins good has market demand given by the (inverse) demand function p
I. Consider two firms, 1 and 2. each producing an identical good simultaneously. Tins good has market demand given by the (inverse) demand function p 9 2Y. where p is price, and Y = yi + y7 is market quantity. y represents the amount produced by firm i. These firms have cost functions as follows: C cjyj, where c1 = = 1. (60 pts) a) Solve algebraically for these firm's reaction functions, expressing each firm's optimal output level given sonic level of its competitor's output. b)Graphthesereactionfunctionsandshowtheequilibriumpoint.Includeisoprofitcontours through the equilibrium point for both firms. c) Solve algebraically for the equilibrium: Determine the equilibrium market price, as well as each firm's equilibrium quantity and profit d) Is your answer to part c) the only equilibrium possible? Explain.
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