Question

Suppose there are two firms, boors and cudweiser, each selling identical-tasting nonalcoholic beer. consumers of this beer have no brand loyalty so market demand can be expressed as p = 5 − .001(qb + qc). boors' marginal revenue function can be written mr = 5 − .001(2qb + qc) and while cudweiser's marginal revenue function can be written mr = 5 − .001(qb + 2qc). boors operates with out-of-date technology and has constant cost of mc = ac = $2 per unit, whereas cudweiser has mc = ac = $1 per unit. assuming the firms behave as cournot competitors, boor's best-response function is

Answer 1

Answer: The best response function of Boor is given by $qb=1500-\frac{1}{2}qc$

Explanation: Best response function of Boor will show the profit maximising quantity Boor will choose to produce for each quantity produced by Cudweiser. This means that it shows the best profitable quantity that Boor can produce given the quantity produced by Cudweiser.

So, the best response function can be derived by the profit maximising condition for Boor, which is

$MR_{B} = MC_{B}$$5 − .001(2qb + qc) = 23 = 0.001(2qb+qc)3000=2qb+qcqb=\frac{3000-qc}{2} qb= 1500 - \frac{1}{2}qc$

Thus, the best response function of Boor is given by $qb=1500-\frac{1}{2}qc$