Essay
Suppose Ralph sells bento lunches,which have the following demand:
pR = 100 - qR - 0.5qD
where pR is the price of Ralph's bentos and qR is the number of bentos Ralph sells.qD is the number of bentos Ralph's rival,Dave,sells.Dave's demand is given by:
pR = 100 - qD - 0.5qR
where pD is the price Dave can sell his bentos for.Suppose each seller has a cost per unit (average and marginal)of $1.
a.How does this game differ from the Cournot model with identical products? Why do the demand curves indicate that the goods are differentiated - not perfect substitutes for one another?
b.Compute the best response functions for each seller and the Nash Equilibrium outputs and prices.
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a.The output of the rival firm has a sma...View Answer
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