Last Updated on 28. April 2023 by Martin Schuster

Task

Suppose we have a market with two vendors A and B. They aim to maximize their profits. They can adjust their production quantities. Vendor A is the first on the market. B follows after A has set his quantity. The following formula calculates the market price:

p = 800-q_A-q_B

What is the quantity, price and profit for A and B if both optimize individually?

Solution

q_A = 400

G_A = 80,000

q_B = 200

G_B = 40,000

p = 200