Reference no: EM131282718
Lubb-bricks uses B2B technology to set output before West Texas Brick. This gives Lubb-bricks "first-move" ability. The market demand for bricks is:
Qd =1,000-100P ⇔P =10-0.01Qd
West Texas Brick's marginal revenue curve is: (qL, qW ) = 10 - 0.02qL - 0.01qW . The
marginal cost of producing an additional unit of bricks is constant at $2.00 for each firm.
(a) Determine West Texas Brick's reaction function.
(b) Given that Lubb-bricks has this information and moves first, Lubb-Bricks' marginal revenue curve is: (qL) = 6 - 0.01qL. Calculate Lubb-bricks optimal output level.
(c) Does the "first-move" ability of Lubb-bricks allow them to capture a larger market share (note that the marginal revenue curves would be symmetric if Lubb-bricks did not have first-move ability)?
(d) How much do Lubb-bricks profits increase by using the B2B technology, relative to the symmetric case? Assume that the B2B technology was obtained at zero cost and can be operated at zero cost.
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