Aidan and Celina are the only sellers of jack russell terrier (JRT) in Antigua. Celina chooses her profit maximizing number of JRTs to sell, q1, based on the number of JRTs that she expects Aidan to sell. Aidan knows how Celina will react and chooses the number of JRTs that she herself will sell, q2, after taking this information into account. The inverse demand function for JRTs is P(q1 + q2) = 2, 000 − 2(q1 + q2). It costs $400 to raise a JRT to sell. (a) Explain in detail what type of competitors are Aidan and Celina. (b) If Celina expects Aidan to sell q2 JRTs, what will her own marginal revenue be if she herself sells q1 JRTs? (c) What is Celina’s reaction function, R(q2)?
Aidan and Celina are the only sellers of jack russell terrier (JRT) in
Antigua. Celina chooses her profit maximizing number of JRTs to sell, q1, based
on the number of JRTs that she expects Aidan to sell. Aidan knows how Celina
will react and chooses the number of JRTs that she herself will sell, q2, after
taking this information into account. The inverse demand function for JRTs is
P(q1 + q2) = 2, 000 − 2(q1 + q2). It costs $400 to raise a JRT to sell.
(a) Explain in detail what type of competitors are Aidan and Celina.
(b) If Celina expects Aidan to sell q2 JRTs, what will her own
marginal revenue be if she herself sells q1 JRTs?
(c) What is Celina’s reaction function, R(q2)?
(d) Now if Aidan sells q2 JRTs, what is the total number of JRTs
that will be sold?
(e) What will be the market price as a function of q2 only?
(f) What is Aidan’s marginal revenue as a function of q2 only?
(g) How many JRTs will Aidan sell?
(h) How many JRTs will Celina sell?
(i) What will be the industry price?
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