What is nash equilibrium price and quantity for each firm

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Reference no: EM13156093

Two firms, A and B, produce goods A and B, respectively. The linear demand function for the two goods are respectively,

Qa = 100 - 4Pa + 1.5Pb

Qb = 120 - 2Pb + 0.5Pa

Production costs are given by Ca (Qa) = 2Qa and Cb (Qb) = 3Qb

The two firms engage in a price war.

A) Derive the equations for the best response functions for each firm

B) Sketch a graph of the best response functions

C) If firm A expects firm B to set its price at $20, what is firm A's best response? If firm B predicts that firm A will price good A at $36, what is firm B's best response?

D) What is the NASH EQUILIBRIUM price and quantity for each firm?

E) How much profit does each firm earn in Nash Equilibrium?

Reference no: EM13156093

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