Question

The market demand is given by P = 90 − 2Q. There are only two firms producing this good. Hence the quantity supplied in the market is the sum of each firm’s quantity supplied (that is, Q = qA + qB), where qj is the firm j 0 s quantity supplied). Firm A has zero marginal cost, while Firm B has the marginal cost of $30. Each firm has no fixed cost, and simultaneously chooses how many units to produce.

(a) What is Firm A’s profit function if Firm A takes the quantity chosen by Firm B, qB, as given?

(b) Find the equilibrium quantities produced by each Firm
(Q_{A}*,Q_{B}* ).

Answer #1

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