Answer to Question #142607 in Microeconomics for Sid

Question

The demand functions of two Duopolists are given as: P1 = 105 -2q1- q2

P2 = 35 -q1 - q2

and their respective cost functions are C1= 5q1^2 and C2 = q2^2

a) if Duopolist 1 increases its price by $2, what will be its effect on its profit and output levels?

b) If duopolies 1 reduces the price by $ 2, how much price reduction will be required by the Duopolist 2 to maintain his old level of output?

Answer 1

a) if Duopolist 1 increases its price by $2, then its profit and output levels will decrease, because his competitor's price remains the same.

b) If duopoly 1 reduces the price by $ 2, then the same or even higher price reduction will be required by the Duopolist 2 to maintain his old level of output.