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Question 4. Two firms produce candies that are imperfect substitutes. This is reflected in the demand curves of the two firms’ candies, D1(p1,...

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Question 4. Two firms produce candies that are imperfect substitutes. This
is reflected in the demand curves of the two firms’ candies, D1(p1,p2) = 100 —
191 + 0.5132 and D2(p1,p2) = 100 — 192 —l— 0.5391. Suppose each firm has constant marginal cost of 20. (1) Suppose the two firms compete by making simultaneous price decisions.
Calculate the equilibrium price, quantity and profit for each firm. (2) Suppose the two firms compete by making sequential price decisions, where
firm 1 is the leader. Calculate the equilibrium price, quantity and profit for each firm.

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