Business math question

Jul 2008
212
2
Firm A supplies parts for Firm 2's products. They value being located close to each other. But Firm A also likes to be located towards the west (a lower number) and Firm B likes to locate towards the east (a higher number). With x1 being the location of Firm A and x2 being the location of Firm B. Assume that decisions are made simultaneously. The payoffs to the two firms are:

π1 (x1, x2) = 12 - x1^2 - (x2-x1)^2
π2 (x1, x2) = 12 - (1 - x2)^2 - (x2-x1)^2

Derive best response functions for the two firms and find the nash equilibrium.

THANK YOU
 
Last edited:
Jul 2008
212
2
Can someone check these answers: so for firm 1 i got -2(x2-x1) and setting it to 0 is x1 = -x2
and firm 2 i got 2(x2-x1) and setting to 0 i got x1=x2

Is this correct?

And I also want to draw a diagram of this so how would i go about doing that?

And also is the nash equilibrium just where x1 = x2 ie where they are located at the same place?