Suppose in a duopoly, Firm 2 sets price after Firm 1, and the firms produce differentiated products. Marginal cost is zero and fixed cost is $20. Firm 2s demand is 30 - 2P2 + P1. Firm 2s reaction curve isis

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    P2 = 7.5 + 1/4(P1) and Firm 2s profit maximizing price is negatively correlated with Firm 1s price.e.
     P2 = 7.5 + 1/4(P1) and Firm 2s profit maximizing price is positively correlated with Firm 1s price.e.
     30 - 4P2 + P1 and Firm 2s price is negatively correlated with Firm 1s price.e.
     P1 = 7.5 + 1/4(P2) , and Firm 2s price is positively correlated to Firm 1s price.e.
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

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P2 = 7.5 + 1/4(P1) and Firm 2s profit maximizing price is positively correlated with Firm 1s price.e.
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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