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Differentiated Bertrand. Consider a Differentiated Bertrand model in which demand is given by q1 = 100 – p1 + p2 and q2 = 100 – p2 + p1 for firm 1 and firm 2 respectively and where both firms faced zero fixed costs and constant marginal cost = c.
a) Suppose that firms choose prices simultaneously. Solve for the Nash equilibrium (i) price (ii) output and (iii) profits of each firm as functions of c.
b) Now suppose that firm 1 chooses price first and then firm 2 chooses price taking firm 1’s price as given. Solve for the Sub-game Perfect Nash equilibrium (i) price (ii) output and (iii) profits of each firm as functions of c.
c) Use reaction functions to explain why making firm 1 a first mover results in both firm 1 and firm 2 raising price.
Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?
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When will the competitive firm shut down in the short run? When will it incur a loss but continue to produce? Draw a graph showing each scenario and explain.
Parker County Community College (PCCC) is trying to determine whether to use no insulation or to use insulation that is either 1 inch thick or 2 inches thick on its steam pipes. The heat loss from the pipes without insulation is expected to cost $1.7..
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Suppose you are the economist of Didier Enterprises - a firm that manufactures ballistic missiles. Based on the estimates provided by a consultant, you know that the relevant demand and cost functions for the missiles are Q= 25 -.5P and MC = 2. What ..
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Start with your factors of production on page 34 and then briefly describe whether these resources were allocated efficiently. Think about how you can check whether marginal benefit equals marginal cost for each of your household’s activities. Are yo..
When a profitable Japanese-owned company owns a car factory in the U.S. and sells the cars within the U.S., this [increases/decreases/does not change] the U.S. trade deficit and [increases/decreases/does not change] the U.S. current account deficit.
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