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Two firms produce an identical good in market where demand is given by p=16-q. They have identical marginal costs, equal to 4. Firms compete by choosing simultaneously and independently

Two firms produce an identical good in market where demand is given by p=16-q. They have identical marginal costs, equal to 4. Firms compete by choosing simultaneously and independently quantities q1 and q2, where q= q1+q2.
i) determine and graphically illustrate the best reply functions for the two firms.
ii) Determine the equilibrium quantities, market shares and profits.
Assume now that, before both firms make their quantity decision, firm 1 can invest in a technology which lower its marginal cost to 0. The cost of this investment in equal to K.
iii) Assuming that the investment by firm 1 has been made, determine the best-reply functions for the two firms and the equilibrium quantities they offer in the market.
iv) Determine the firms' profits. Find the maximum value of K which induces firm 1 to make the investment

Apr 12 2021 View more View Less

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