Assume that two firms sell differentiated products and face, Business Economics

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Assume that two firms sell differentiated products and face

Assume that two firms sell differentiated products and face the following demand curves: = 15 − + 0.5 and = 15 − + 0.5 (Assume that the marginal cost is zero)

1. Derive the best response function for each firm. Do these indicate that prices are strategic substitutes or strategic complements?

2. What is the equilibrium set of prices in this market? What profits are earned at those prices?

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Business Economics: Assume that two firms sell differentiated products and face

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