Adam and Ben are two main lawn mower production companies in Johannesburg which compete in garden...

 

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Adam and Ben are two main lawn mower production companies in Johannesburg which compete in garden and landscaping industry in South Africa. The two companies' lawnmower are differentiated. At the beginning of each quarter the two companies set their prices. The demand functions for each company are: QA150-10PA+ 9PB QB = 150-10PB +9PA where the subscript A denotes the company Adam and the subscript B denotes the company Ben. Each company has a constant marginal cost of R7 per lawn mower. a) Find the reaction functions of each company and interpret them. (6) b) Find the equilibrium price of each company, the corresponding quantities, and the profit (6) c) Graph each company's reaction function and show the equilibrium prices. On the same graph show the effect of decrease in marginal cost of both companies. (6) d) Using well annotated diagram show how the reaction functions in (c) are affected by each of the following changes: i) Both companies' demand conditions change so that the constant term in each demand function becomes larger than 150. (3) Both price coefficients in each demand function now become larger than those (4) ii) given in the equations. Adam and Ben are two main lawn mower production companies in Johannesburg which compete in garden and landscaping industry in South Africa. The two companies' lawnmower are differentiated. At the beginning of each quarter the two companies set their prices. The demand functions for each company are: QA150-10PA+ 9PB QB = 150-10PB +9PA where the subscript A denotes the company Adam and the subscript B denotes the company Ben. Each company has a constant marginal cost of R7 per lawn mower. a) Find the reaction functions of each company and interpret them. (6) b) Find the equilibrium price of each company, the corresponding quantities, and the profit (6) c) Graph each company's reaction function and show the equilibrium prices. On the same graph show the effect of decrease in marginal cost of both companies. (6) d) Using well annotated diagram show how the reaction functions in (c) are affected by each of the following changes: i) Both companies' demand conditions change so that the constant term in each demand function becomes larger than 150. (3) Both price coefficients in each demand function now become larger than those (4) ii) given in the equations.

Answer rating: 100% (QA)

a Find the reaction functions of each company and interpret them The reaction function of a company is the price that it sets as a function of the price set by the other company To find the reaction f... View the full answer