# two firms in an industry,two firms in an industry,

Suppose there are two firms in an industry, X and Y. Demand for each firm’s product is,

respectively:

QDX = 90 – 3PX + 2PY

QDY = 90 – 3PY + 2PX

Both firms also face a constant marginal cost of 10 per unit: MCX = MCY = 10, and there are no fixed costs for either firm.

Using the example above as a guide, find the equations that characterize the “best responses” for each firm, expressing each firm’s optimal price in terms of the rival’s price:

Firm X’s best response:

Firm Y’s best response:

Firm X’s equilibrium price:

Firm Y’s equilibrium price:

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