Question

Suppose there are two firms (1 and 2) located along a surface water resource and that the profit functions of each firm are provided below, where 7iNSYsLDJFEN13ZU0zrrDQ8e1tBLr7r8AAAAAElF is the quantity of water used by firm i.
Firm a:wPHcbYArNlLhwAAAABJRU5ErkJggg==

Firm b: O4fW7gxNIFgAAAABJRU5ErkJggg==

If each firm uses the amount of water that maximizes its own profits, what is the total quantity of water that will be used?
Suppose that there are only 20 total units of water available. What is the allocation of the 20 units of water across the two firms that maximizes total profits?
Relative to the allocation of water that you found in part (b), by how much do total profits decrease if the 20 units are instead evenly distributed to the two firms (in other words, each firm is allocated 10 units of water)?

Answer 1

Answer:

See attached files

Explanation: