Suppose the daily demand for Coke and Pepsi in a small city are given by and 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.What is the Nash equilibrium price for Coke? A) $.016 B) $0.45 C) $0.53 D) $0.38

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Quizplus · Accepted Answer

To find the Nash equilibrium, we need to find the point where neither Coke nor Pepsi has an incentive to change their price. This occurs where the two firms' reaction functions intersect. The reaction function for Coke is: P_C = 3 - 0.1Q_P The reaction function for Pepsi is: P_P = 2.5 - 0.2Q_C Setting these equal to each other and solving for Q_C, we get: Q_C = (12 - 2P_P)/3 Plugging this back into either reaction function, we get: P_C = 2.2 + 0.0333P_P To find the Nash equilibrium price for Coke, we need to solve for the price where Coke's reaction function intersects with Pepsi's reaction function. This occurs at P_C = P_P = $0.53. Therefore, the Nash equilibrium price for Coke is $0.53. Since this is higher than the marginal cost of $0.45, both Coke and Pepsi earn positive profits at this price.

Suppose the Daily Demand for Coke and Pepsi in a Small