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To find the equilibrium price and quantity, we need to find the values of b1 and b2 that satisfy both firms' best-response functions simultaneously. We
To find the equilibrium price and quantity, we need to find the values of b1 and b2 that satisfy both firms' best-response functions simultaneously. We can do this by setting b1*(b2) equal to b2 and b2*(b1) equal to b1, and then solving for b1 and b2. Setting b1*(b2) = b2, we get: (Pi - a - cb2) / (2c) = b2 Simplifying and solving for b2, we get: b2 = (2Pi - 2a - 2cb2) / (4c + 2) b2 = (Pi - a - cb2) / (2 + c) Multiplying both sides by (2 + c), we get: b2(2 + c) = Pi - a - cb2 b2(2 + c + c) = Pi - a b2 = (Pi - a) / (2c + 2) Similarly, setting b2*(b1) = b1, we get: b1 = (Pj - a - cb1) / (2 + c) Multiplying both sides by (2 + c), we get: b1(2 + c) = Pj - a - cb1 b1(2 + c + c) = Pj - a b1 = (Pj - a) / (2c + 2) Now we can substitute these expressions for b1 and b2 into the best-response functions to find the equilibrium price and quantity: Pi = a + cb1 + 2b2 Pi = a + c(Pj - a) / (2c + 2) + 2(Pi - a) / (2c + 2) Simplifying and solving for Pi, we get: Pi = (2c + 2)a + cPj / (2c + 2) + 2Pi / (2c + 2) Pi = (2c + 2)a + cPj / (2c + 2) + Pi / (c + 1) Pi(c + 1) = (2c + 2)a + cPj / (2c + 2) Pi = (2c + 2)a / (c + 1) + cPj / ((2c + 2)(c + 1)) Substituting this expression for Pi into the expression for b2, we get: b2 = (Pi - a) / (2c + 2) b2 = [(2c + 2)a / (c + 1)Two oligopoly firms, Busy-Time Inc. (B) and Home Internet Service (H), produce differentiated Internet service and compete over prices in a one-shot game. The quantity demanded for firm B is qB = 96 - 2pB + PH, the quantity demanded for firm H is qu = 96 -2pu + PB, where qB, qH 2 0 and PB, PH - 48. The marginal cost (c) is 12 for both firms, and fixed costs are zero. Use the equilibrium results from Topic 8 to calculate the equilibrium prices for each firm (hint: you are not required to derive equilibrium prices). Following on from question 3 above, use the equilibrium results from Topic 8 to calculate the equilibrium quantities for each firm (hint: you are not required to derive equilibrium quantities)
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