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Two firms A and B are engaged in an advertising contest. Each firm can choose its advertising spending a 0 and b 0. Given their
Two firms A and B are engaged in an advertising contest. Each firm can choose its advertising spending a 0 and b 0. Given their ad spendings a, b, Firm A's profit equals
and Firm B's profit equals
a = 9a a2 ab b = 12bb2 ab
(a) (3pts) Find firm A's best response function, namely find A's optimal strategy a as a function of B's strategy b.
(b) (3pts) Find firm B's best response function.
(c) (3pts) Use the two best response functions to find the Nash equilibrium
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