Derive each firm''s reaction function

Reference no: EM131335689

Suppose that there are two producers of prokrypton-B, a rare mineral capable of incapacitating aliens from distant planets. Governments across the globe are interested in purchasing defensive stores of the rare mineral. The market demand for prokrypton-B is given by P = 200 - 0.2Q, where Q is the collective output of the industry, in tons; q A is the output of Firm A; and q B is the output of Firm B. Assume that each firm produces prokrypton-B at a marginal cost of $10 per ton.

a. Derive each firm's reaction function.

b. Solve for the equilibrium quantity of each firm, as well as industry output.

c. Solve for the market price of prokrypton-B.

d. Solve for the profit earned by each firm.

e. Suppose that a labor dispute drives Firm B's cost to $12 per ton.

i. What happens to the output of each firm as a result?

ii. What happens to the market price of prokrypton-B?

iii. What happens to the profit of each firm?

Reference no: EM131335689

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