Unformatted text preview: q 1 – q 2 ) q 2 30 q 2 = 90 q 2 – q 1 q 2 – ( q 2 ) 2 . Differentiate this with respect to q 2 and set equal to zero: 90 – q 1 – 2 q 2 = 0. Solve for q 2 to get firm 2’s bestresponse: q 2 = 45 – 0.5 q 1 . Substitute for q 1 from 1’s bestresponse into 2’s bestresponse: q 2 = 45 – 0.5(60 – 0.5 q 2 ) q 2 = 45 – 30 + 0.25 q 2 0.75 q 2 = 15 q 2 *= 20. Substitute for q 2 *=20 into 1’s bestresponse to get q 1 *= 50. (b) Calculate the equilibrium price p * and profits for each firm. From the demand curve, p * = $50 and 1 *= $2500 and 2 * = $400....
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 Summer '07
 Dr.ShomuBanerjee
 Microeconomics, Equilibrium, Supply And Demand, $50, $400, $2500, Shomu Banerjee

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