Unformatted text preview: product then they will make zero economic proﬁt 5. Two ﬁrms, 1 and 2 produce a homogenous product. Their outputs are q 1 and q 2 . Let demand be p = 1001 3 Q, where Q = q 1 + q 2 . (a) Initially marginal costs are c 1 = 10 = c 2 . Find Nash equilibrium (NE) outputs. Show best response functions on a diagram and also show NE on this diagram, be accurate. (b) Firm 1 discovers a new technology which reduces its marginal cost to c 1 = 5 . Find the new NE outputs and show on a diagram. calculate the proﬁt of each ﬁrm in this NE. 1...
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 One '09
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 Economics, Game Theory, best response, Matching pennies, new NE outputs

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