There are two firms competing in the market for same good

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Reference no: EM131424617

There are two firms competing in the market for the same good by simultaneously and inde- pendently selecting their supply quantities q1 ≥ 0 and q2 ≥ 0. The market price is given by P(Q) = 1−Q where Q = q1 +q2. Both firms have the same constant marginal cost c > 0 for producing the good (0 < c < 1). Firms are maximizing their profits. To sum up, the payoffs are given by:

π1(q1,q2) =P(Q)q1 −cq1 =[1−(q1 +q2)]q1 −cq1

π2(q1,q2) =P(Q)q2 −cq2 =[1−(q1 +q2)]q2 −cq2

(a) Find best response functions for both firms and plot them on the same graph.

(b) Find the Nash equilibrium.

Hint: Follow the same steps we took in class to solve the “Partnership Game”.

Reference no: EM131424617

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