Consider the case of two firms competing in a market. Each firm has a constant marginal cost equal to $10. The demand function is D(p) = 100 ? p (p is the price in cents) Firms are competing by choosing prices simultaneously. When prices are equal, each firm gets exactly one half of the total demand. P must be an integer value.

1. Find all the  Nash equilibria of this duopoly game.

2. Calculate each firms profit under any equilibria.

3. What is each firms best response?

4. Firm 1 decides to raise the price to 200. If you are firm 2 what price should be set to maximize your profit? What are your profits at the new price?

Answer rating: 100% (QA)

1 Nash Equilibria There are three Nash equilibria in this game Equilibrium 1 Both firms charge p 40 cents Reasoning If any firm charges more than 40 c... View the full answer