Three firms (A, B, and C) compete in the widgets market. Demand for widgets is g

Question

Three firms (A, B, and C) compete in the widgets market. Demand for widgets is given by P(Q) = 130 qA qB qC . Assume that firm A is more efficient than B, and B more efficient than C. In particular, MCA =5,MCB =10,andMCC =15.

1) Write down the profit function of each firm.

2) Draw, in one graph, the three profit functions. In the horizontal axis you should put quantities and in the vertical axis profits. Be sure your graph is precise. When drawing the profit function of firm i (with i = A,B,C), you will need to hold constant the output level of its rivals. This is, if you are drawing the profit function of firm A, you need to assume a level of production for B and C, and this level has to be constant as you vary production of A along the horizontal axis. Then, do the same for B holding constant production of A and C. Finally, do the same for C holding constant production of A and B.

Explanation / Answer

Three firms (A, B, and C) compete in the widgets market. Demand for widgets is g

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