New York University ECON-SHU ECON-SHU COR1-GB.13 There are only 2 producers of “gadgets”: Blue Gadgets Inc. (B)…
There are only 2 producers of “gadgets”: Blue Gadgets Inc. (B) produces only blue gadgets; the Green Gadget Company (G) produces only green gadgets. Although the customers of gadgets Firms & Markets Take-at-Home Final Exam Page 6 care about the price of the gadgets that they buy, they also have preferences as to color: some customers prefer green gadgets; some customers prefer blue gadgets. These preferences are expressed in terms of the demand curves for each company’s products (where Q is millions of gadgets per year and P is the price per gadget):
QB = 400 – 40*PB + 40*PG
QG = 400 – 40*PG + 40*PB
The marginal costs for producing gadgets are the same for both companies: MCB = MCG = $10.
If each company competes on the basis of price (and each company assumes that the other company’s price is unaffected by the first company’s pricing), what will be the equilibrium outcome in terms of the prices, quantities, and profits for the 2 firms. Explain your answer (or show your work).
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