Subject | General |

Due By (Pacific Time) | 11/12/2017 04:00 pm |

1. (5 points) Consider a market with two firms that each have cost function

C= 4.5 + Q + .5Q2. Market demand is QD = 100 – P

a) Please write the equation of the reaction function for each firm.

b) What is the Nash equilibrium in this market if these firms engage in Cournot

Competition?

2. (10 points) Please give the Outcome (P1, P2, Q1, Q2 , π1 , π2 ) for each of the following

problems

a Stackleberg competition with Firm 1 leader

C1 = 100 + 4Q1 + .1 Q12

C2 = 100 + 6Q2 + .2 Q2 2

Inverse Demand: P = 1000 – Q/2

b) Bertrand competition with product differentiation

QD1 = 200 – P1 + P2

QD2 = 300 – 2P2 + 2P1

c1 = 20, c2 =30

c) Firm 2 price leader with product differentiation

QD1 = 200 – P1 + P2

QD2 = 300 – 2P2 + 2P1

c1 = 20, c2 =30

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