Question

Consider two firms competing in quantities, with total costs given by tc1 = q1, tc2 = q2. The market demand is p=10-q, where p is the price and q = q1 + q2. What are the profits of the two firms?

Answer 1

The profits of the two firms can be calculated by subtracting their total costs from their total revenues.

Step-by-step explanation:

The profits of the two firms can be calculated by subtracting total costs from total revenue. Total revenue is the product of the price and quantity, while total costs for each firm can be found by substituting their respective quantities into their cost functions.

For firm 1, total revenue is given by TR1 = p * q1 = (10 - q) * q1. Total cost for firm 1 is TC1 = q1. Similarly, for firm 2, total revenue is TR2 = p * q2 = (10 - q) * q2 and total cost is TC2 = q2.

To calculate the profits, subtract the total costs from the total revenues for each firm.