8. Two software companies sell competing products. These products are substitutes so that the number of units that either company sells is a decreasing function of its own price and an increasing function of the other product's price. Let P1 and X1 be the price and quantity sold of product 1, and P2 and X2 the price and quantity sold of product 2. We have that X1 = 1,000 (90-P1+¹P2) and X2 = 1,000 (90-1/P2 + P1). Each company has incurred a fixed cost for designing their software and writing programmes, but the cost of selling to an extra user is zero. As the firms compete in prices, each company will choose a price that maximises its profits.
8. Two software companies sell competing products. These products are substitutes so that the number of units that either company sells is a decreasing function of its own price and an increasing function of the other product's price. Let P1 and X1 be the price and quantity sold of product 1, and P2 and X2 the price and quantity sold of product 2. We have that X1 = 1,000 (90-P1+¹P2) and X2 = 1,000 (90-1/P2 + P1). Each company has incurred a fixed cost for designing their software and writing programmes, but the cost of selling to an extra user is zero. As the firms compete in prices, each company will choose a price that maximises its profits.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter3: Demand Analysis
Section: Chapter Questions
Problem 8E: The Stopdecay Company sells an electric toothbrush for $25. Its sales have averaged 8,000 units per...
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