3M involves its customers in the process of developing new products. In this way, it can benefit from current customers' insight
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Answer:
The best response functions are given by
Explanation:
Under no fixed costs the total costs is
for i=1,2. The market demand is given by
where is the total production
Firm 1 and 2 will maximize its own profits. Since this firms are symmetric the problems are too
The first order conditions (take derivative of the profit with respect to are given by
Then the best-response function for Firm 1 will be
and the solution for Firm 2 would be the symmetric
Now we can add fixed costs, so total costs now look
for i=1,2
the profit maximization problem for firm 1 looks now
The first order conditions are given by
note that this equation is the same as in the absence of Fixed Costs. So the solutions would be the same. Fixed costs don't change the optimal level of production of these firms.
Note that Total Costs are given by fixed costs (F) and marginal costs (m) that depend on the production level of the firm
for i=1,2. The market demand is given by
where is the total production, so it's the sum of each firms production
Firm 1 will maximize it's own profits
The first order conditions (take derivative of the profit with respect to are given by
Then the best-response function for Firm 1 will be
and the solution for Firm 2 would be symmetric.
Note that only marginal costs are relevant for getting the best-response function, so adding fixed costs (F) don't change the results
Explanation: