(3) Assume that s = 3.(a) Find firm B’s profit function under the subsidy. (No work required.)(b) Find firm B’s best response function.(You may do this directly or by setting s to zero in yourexpressions from (1b).(c) Why don’t I need to ask you to solve for A’s best response?(d) Solve for the equilibrium outputs (q*A, q*b ).(e) Solve for the equilibrium price.(f) Solve for firm B profits. All question are with regards to the following set up. There are two firms A and B. Firmscompete in a Cournot Duopoly in Karhide. They set quantities qa and qB. Inverse demand isP(qA + qB) = 18 – qA – qB and costs are C(q)(in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engagesin a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm Bproduces and sells qB units, firm B receives a payment of s * qB from the government.)You must show your work at each step, unless the questions is followed by "No work required."3 * q for both firms. Firm B is a domestic firm

The cost is divided into two categories that are fixed cost and variable cost. The total fixed cost…

Answered: ) Assume that s = 3. (a) Find firm B’s…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

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(3) Assume that s = 3.
(a) Find firm B’s profit function under the subsidy. (No work required.)
(b) Find firm B’s best response function.(You may do this directly or by setting s to zero in your
expressions from (1b).
(c) Why don’t I need to ask you to solve for A’s best response?
(d) Solve for the equilibrium outputs (q*A, q*b ).
(e) Solve for the equilibrium price.
(f) Solve for firm B profits.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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(c) Why don’t I need to ask you to solve for A’s best response?
(d) Solve for the equilibrium outputs (q*A, q*b ).
(e) Solve for the equilibrium price.
(f) Solve for firm B profits.

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