Question 1:

You are a manager of Kleenex and you compete directly with Puffs selling facial tissues in America. Puffs expects to select its output in October of next year, and Kleenex expects to select its output in September of next year. Consumers find the two products to be indistinguishable. The inverse market demand for the products is P = 7 -2Q and both firms used to produce at a constant unit cost of $4. However, the engineering department at Kleenex estimates that it can reduce marginal cost to $3 if they develop a new procedure. That new procedure is estimated to cost $2 to develop. Should Kleenex develop that new procedure?

Question 2:

You are a manager of Nvidia and your only significant competitor in the mainstream graphics card market is the ATI subsidiary of Advanced Micro Devices. ATI expects to select its output of the next generation of graphics card in October of next year, and Nvidia selects its output in November of next year. Nvidia's graphics cards and ATI's graphics cards are indistinguishable to consumers. The market demand for graphics cards is Q = 4.50-0.50P and both firms used to produce at a constant unit cost of $6. However, you just found a better way to produce graphics cards, which reduces your constant unit cost to $5. Should Nvidia keep that procedure to itself? Or is it better to sell that secret to ATI so that both Nvidia and ATI can produce at a constant unit cost of $5? And if it is better to sell that secret, compute the range of sales prices that are acceptable to both parties.