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SETUP: Consider a firm attempting to maximize profit across two markets. In Market 1, inverse demand is p1 (Q1) = a1 - b1Q1. In Market
SETUP: Consider a firm attempting to maximize profit across two markets. In Market 1, inverse demand is p1 (Q1) = a1 - b1Q1. In Market 2, inverse demand is p2(Q2) = 02 - b2Q2. The firm produces according to C(Q1, Q2) = cQ1 + dQ; + eQ2. ASSUMPTIONS: a1, a2, b1, b2, c, d, e > 0 QUESTION: What are the optimal quantities in each market, Q; and Q2, what are the resulting market prices, and what is the firm's total profit across both markets? Is the firm more responsive (in quantity) to an increase in demand for product 1 or product 2
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