Answer to Question #242362 in Economics of Enterprise for Princess

Question

Two firms in a homogeneous-product duopoly market (firm 1 and firm 2) have the following cost and demand functions: TC1=4q1; TC2=4q2 and Q=40-P; Q=q1+q2. a) Derive the reaction function/best-response function for each firm. b) Assume that the firms play a simultaneous move game. Characterize the Nash Equilibrium. c) Suppose the two firms play game is a sequential game with the following timing of events: 1. Firm 1 chooses output 2. Firm 2 observes firm 1’s output and then chooses output Characterize the Nash equilibrium of this sequential move game. 

Answer 1

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