Suppose that an industry consists of two firms producing an identical product. The market demand for the combined output of both firms is (Q_A + Q_B) = 50 !P. The total cost function of each firm is TC_i = 1 + 10Q_i, where i = A,B. Firm B's best-response function is: A) Q_A = 50 !Q_B. B) Q_B = 50 !Q_A. C) Q_A = 20 !0.5Q_B. D) Q_B = 20 !0.5Q_A. E) None of the above."

Question

Quizplus · Accepted Answer

The best-response function for Firm B would consider its output in relation to Firm A's output and the market demand. Given the total cost function and the market demand, the correct response involves solving for Firm B's output as a function of Firm A's output, leading to the choice that correctly represents this relationship.

Suppose That an Industry Consists of Two Firms Producing an Identical