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# practice_problem2_answers - AEM 2600 Practice Problem 2 1...

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AEM 2600 Practice Problem 2 1.) You are given the following market demand curve and total cost functions of two companies: , where a) Given that the two firms compete for market share through deciding on their production quantities, please estimate the reaction function for each firm in regards to the other firm’s quantity. Both firms move simultaneously in this scenario (simultaneous game) (2 Points). ( ) ( ) Similarly: b) Calculate the profit maximizing quantities for each firm (2 Points). ( ) ( ) 2.8 c) Calculate the profits of each firm (2 Points). P = 80-4(2.8+6.1) = 44.4

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d) Now assume that firm 1 operated as a monopoly in this same market. That is, assume the same demand curve and cost structure for firm one, but firm two is not in the market. What are the profits for firm 1 in this new scenario (2 Points)? ( ) ( ) ( ) = 160 e) Compare this monopoly profit to the profit firm 1 earned when firm 2 was present in the market. Give a brief explanation for the difference between the two numbers (1 Point).
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