A U.S. company and a Japanese company sells an identical product in the Japanese market. The inverse demand equation for this product is P_J = 10 !0.5(Q_JUS + Q_{J J}). Suppose that the best-response functions of the U.S. and Japanese companies are Q_JUS = 6 !0.5Q_{J J} and Q_{J J} = 9 !0.5Q_JUS, respectively. The price of this product in the Japanese market is:

Question

Quizplus · Accepted Answer

To find the equilibrium quantities produced by both the U.S. and Japanese companies, we can substitute one best-response function into the other. Substituting the Japanese company's best-response function into the U.S. company's gives: $Q_{US} = 6 - 0.5(9 - 0.5Q_{US})$. Solving this equation for $Q_{US}$ gives $Q_{US} = 4$. Substituting $Q_{US} = 4$ into the Japanese company's best-response function gives $Q_{J} = 9 - 0.5(4) = 7$. The total quantity $Q$ is $Q_{US} + Q_{J} = 4 + 7 = 11$. Substituting $Q = 11$ into the inverse demand equation $P = 10 - 0.5Q$ gives $P = 10 - 0.5(11) = 10 - 5.5 = 5.00$. Therefore, the price of the product in the Japanese market is $5.00.

A US Company and a Japanese Company Sells an Identical Product