# hw3_answers - 1 Profit q2=320 Maximization Reaction...

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q2=320 1. Profit Maximization Reaction Function, 2 firms competing by quantity: = = - = = - q1 R1 q2 480 q22|||||||||| q2 R2 q1 480 q12 A. # : = WAY 1 R1 q2 R2 q1 - 480 q22 = - 480 q12 2 q2 - = - 12q2 960 480 ) = 32 q2 48023 = B. WAY # 2 : 480 – ½ (480 - q22 ) 0 = 480 – 240 - q24 240 = ¾ q2 240 (4/3) = q2 or 320 = q2 C. Identical Cost Structures? Yes they do because they have identical reaction functions D. Bertrand or Cournot Model? This is a Cournot model because it is competing in terms of quantity rather than in terms of price. E. Dominant Strategy? Neither firm has the dominant strategy because, that would imply you would choose one reaction regardless of the rivals choice, meaning if firm # 2 chooses 480 rather than 320 as a quantity, in this case firm # 1 would change to 480 as well, so there is no dominance. F. Firm # 1 reaction function redrawn showing increased product differentiation: G. H.

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hw3_answers - 1 Profit q2=320 Maximization Reaction...

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