Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 8

You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms' products are viewed as identical by most consumers. The relevant cost functions are C ( Q i ) = 4 Q i , and the inverse market demand curve for this unique product is given by P = 160 - 2 Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $200, Taurus Technologies can bring its product to market before Spyder finalizes production plans. Should you invest the $200? Explain.