12. Two firms with differentiated products are competing in price. Firm A and B face the following demand curves: Qa = 90 – 2PĄ + Pg and QB = 140 – 2Pg + Pa respectively. Assume production is costless. a. Give equations for and graph each firm's reaction curve. b. If both firms set their prices at the same time, what is the Nash equilibrium price, quantity, and profit for each firm? c. Suppose A sets its price first and then B responds. What price and quantity does each firm set now? Is it advantageous to move first?

12. Two firms with differentiated products are competing in price. Firm A and B face the following demand curves: Qa = 90 – 2PĄ + Pg and QB = 140 – 2Pg + Pa respectively. Assume production is costless. a. Give equations for and graph each firm's reaction curve. b. If both firms set their prices at the same time, what is the Nash equilibrium price, quantity, and profit for each firm? c. Suppose A sets its price first and then B responds. What price and quantity does each firm set now? Is it advantageous to move first?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.8P

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