In the Challenge Solution's mathematical model, how much does Firm 1's profit change as the subsidy, s, increases? In ti

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In The Challenge Solution S Mathematical Model How Much Does Firm 1 S Profit Change As The Subsidy S Increases In Ti 1 (45.32 KiB) Viewed 74 times

In the Challenge Solution's mathematical model, how much does Firm 1's profit change as the subsidy, s, increases? In tiſe Challenge Solution, assume two firms face an inverse demand function of p=a-bQ and the marginal cost of each firm is m. A per-unit subsidy, s, given to both firms, reduces each firm's after-subsidy marginal cost to m-s. The best-response function for Firm 1 is 1 91 a-m + S 2b Ela 292 and the best-response function for Firm 2 is 92 a-m+ S 2b 291 Solving, each firm maximizes profits by producing such that 9- a-m + S Зb A change in the subsidy changes each firm's profit by dri ds 2 816 for i= 1 and 2. (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. Eg., a superscript can be created with the character.)