McDonalds (m) and Burger King (b) compete in hamburger market by selling imperfect substitutes. The demand equations are: Qm - 230 - 2Pm + pb Qb- 230 - 2pb + Pm Assume that marginal cost and average cost is 5 for both firms. a) From the equations, how can you tell these goods are substitutes? b) Suppose the fims compete by simultaneously choosing price. Find the best response fnction of each fim as a function of the other firm's price. c) Compute the equilibrium price and quantity for each fim.

McDonalds (m) and Burger King (b) compete in hamburger market by selling imperfect substitutes. The demand equations are: Qm - 230 - 2Pm + pb Qb- 230 - 2pb + Pm Assume that marginal cost and average cost is 5 for both firms. a) From the equations, how can you tell these goods are substitutes? b) Suppose the fims compete by simultaneously choosing price. Find the best response fnction of each fim as a function of the other firm's price. c) Compute the equilibrium price and quantity for each fim.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter24: Price-searcher Markets With High Entry Barriers

Section: Chapter Questions

Problem 13CQ

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