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Sub: Economics

Topic: Micro Economics

Question: Taurus Technologies & the sole competitor Spyder Technologies - Given the cost & inverse demand function,
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decision making regarding new investment You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms products are viewed as identical by most consumers. The relevant cost functions are C(Qi) = 2Qi, and the inverse market demand curve for this unique product is given by P = 50 Q. Currently, you and your rival simultaneously (but independently make the production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $40, Taurus Technologies can bring its product to market before Spyder finalizes production plans. Should you invest the $40? Explain. Solution: Yes, Taurus Technologies should invest $40. The reasoning is as follows: a. Without investing $40
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Sub: Economics

Topic: Micro Economics

Cost function of the Taurus Technologies is: C(Qt) = 2Qt Cost function of the Spyder Technologies is: C(Qs) = 2Qs Profit function of the Taurus Technologies is: t = PQt C(Qt) = ( 50 Qt Qs) Qt 2Qt

Profit function of the Spyder Technologies is: s = PQs C(Qs) = ( 50 Qs Qt) Qs 2Qs Both the firms make production decisions simultaneously; differentiating the profit functions i with respect to the output Qi, ( i= s,t ), and equating the result to zero we get the reaction function of each firm: Qi = (48- Qj) / 2 for ij Solving the two reaction functions we get Qt= Qs= 48 P = 154/5 And t= s=$199.68
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