5. Firms 1 and 2 compete on quantity with some product differentiation. They each have zero cost of production (zero marginal cost, zero fixed cost), but firm 1 may advertise and incur related costs. Demand for firm 1 is P1 = 10 – 91 - 92 + A, where q, and q, are quantities for firms 1 and 2, and A is firm l's level of advertising. The cost of advertising is A?. Firm 2 does not advertise. Demand for firm 2 is P2 = 10 – 41 - 92- First we consider the static game where all actions are simultaneous; thus, player l's strategy is s, = {41,A}, and player 2's strategy is s, = 42. a. Find firm 2's best response to some belief in s,. %3D b. Find the Nash Equilil ium quantities {a. a and advertising level A in the static

5. Firms 1 and 2 compete on quantity with some product differentiation. They each have zero cost of production (zero marginal cost, zero fixed cost), but firm 1 may advertise and incur related costs. Demand for firm 1 is P1 = 10 – 91 - 92 + A, where q, and q, are quantities for firms 1 and 2, and A is firm l's level of advertising. The cost of advertising is A?. Firm 2 does not advertise. Demand for firm 2 is P2 = 10 – 41 - 92- First we consider the static game where all actions are simultaneous; thus, player l's strategy is s, = {41,A}, and player 2's strategy is s, = 42. a. Find firm 2's best response to some belief in s,. %3D b. Find the Nash Equilil ium quantities {a. a and advertising level A in the static

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 1.1P

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