Two firms compete in a homogeneous product market where the inverse demand function is P = 20 -5 Q (quantity is measured in millions).

PQ

b. Determine the current profits of the two firms.

Instruction:

Firm 1’s profits: $   million

Firm 2’s profits: $   million

c. What would each firm’s current profits be if Firm 1 reduced its price to $10 while Firm 2 continued to charge $15?

Instruction:

Firm 1’s profits: $   million

Firm 2’s profits: $   million