Consider two interrelated product markets 1 and 2 with the following inverse demand functions.

Assume that there is no production cost.

1. What is the relationship between the two goods? Explain your answer.
2. If the firms simultaneously compete in quantities, then determine the best response functions. From the BR response functions determine whether the quantities are strategic substitutes or complements. Explain your answer
3. Determine the Cournot equilibrium outcomes consisting of the equilibrium outputs, prices and profits of each firm.
4. Using the inverse demand functions derive the demand functions.

Answer rating: 100% (QA)

What is the relationship between the two goods Explain your answer The relationship between the two goods is determined by the crossprice elasticity of demand The crossprice elasticity of demand measu... View the full answer