The duopolists Carl and Simon face a demand function for pumpkins of Q = 8,200 - 400P, where Q is the total number of pumpkins that reach the market and P is the price of pumpkins.Suppose further that each farmer has a constant marginal cost of $.50 for each pumpkin produced.If Carl believes that Simon is going to produce Q_s pumpkins this year, then the reaction function tells us how many pumpkins Carl should produce in order to maximize his profits.Carl's reaction function is A)R_C(Q_s)= 4,000 - Qs/2. B)R_C(Q_s)= 8,200 - 400Q_s. C)R_C(Q_s)= 8,200 - 800Q_s. D)R_C(Q_s)= 2,000 - Qs/2. E)R_C(Q_s)= 6,000 - Q_s.

Question

Quizplus · Accepted Answer

Carl's reaction function is derived from the demand function by incorporating his belief about Simon's production and adjusting for his own production to maximize profit, given a constant marginal cost. The correct reaction function would balance the market demand with the cost structure, and option A provides a plausible adjustment to the demand function that reflects a strategic response to the competitor's expected action.

The Duopolists Carl and Simon Face a Demand Function for Pumpkins