Question

There are two auto producers in Karmaa, F1 and F2. The cars they produce are essentially identical. The Illarkt inverse del nand curve is given by P(Q)-α b. Q, where P Q is the price thousands of dollars; Qis the market output in thousands of uts and a and b ar parameters. It is estimated that a 25 and b= .1. Bothド1 and F2 have inarginal costs (f 10,000 per car Competition in Karnia wokrs as follows: At the begiig of cach year, both firms simultancously and independently decide how many cars to produce. Then, the market price adjusts so that supply equals demand a) Write the profit futi for Fl and F2. Be carefl with the uts your units because the Qand P are not measured in simple quantity or dollar terms b) Detere F's best response mapping c) Suppose that an increase in income shifts demand to P) 28 - .1Q. What do you expect will happen to price and the number of cars sold?