Suppose the daily demand for Coke and Pepsi in a small city are given by Q_C = 90 - 100P_C + 400(P_P - P_C)and Q_P = 90 - 100P_P + 400(P_C - P_P),where Q_C and Q_P are the number of cans Coke and Pepsi sell,respectively,in thousands per day.P_C and P_P are the prices of a can of Coke and Pepsi,respectively,measured in dollars.The marginal cost is $0.45 per can for both Coke and Pepsi.What is Coke's best response function? A) Q_C = 200P_P - 67.5 B) Q_C = (90 + 400P_P) - 500P_C C) P_C = 0.315 + 0.4P_P D) P_C = (0.18 + 0.8P_P) - 0.002Q_C

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Quizplus · Accepted Answer

To find Coke's best response function, we need to determine the quantity of Coke that will maximize its profits for each possible price level of Pepsi. This can be found by taking the derivative of the profit function of Coke with respect to Q_C (the quantity of Coke sold) and setting it equal to zero: ∂(πC)/∂Q_C = 0 Simplifying this equation gives us: -100 + 800P_P - 400P_C - 0.9Q_C = 0 Solving for Q_C gives us: Q_C = 0.315 + 0.4P_P Therefore, the best choice is C.

Suppose the Daily Demand for Coke and Pepsi in a Small