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Two firms produce differentiated products. Firm 1 faces the demand curve Q1 = 75 - P1 + .5P2. (Note that a lower competing price robs the firm of some, but not all, sales. Thus, price competition is not as extreme as in the Bertrand model.) Firm 2 faces the analogous demand curve Q2 = 75 - P2 + .5P1. For each firm, AC = MC = 30.
a. Confirm that firm 1's optimal price depends on P2 according to P1 = 52.5 + .25P2. (Hint: Set up the profit expression Ti1 = (P1 - 30)
Q1 = (P1 - 30)(75 - P1 + .5P2) and set MTi = hTi1/hP1 = 0 to solve for P1 in terms of P2. Alternatively, set MR1 = MC and solve for Q1:and then P1 in terms of P2.
b. Explain why a lower price by its competitor should cause the firm to lower its own price.
c. In equilibrium, the firms set identical prices: P1 = P2. Find the firms' equilibrium prices, quantities, and profits.
Construct a confidence interval around forecast - Write the subsequent demand equation, with Qd as the dependent variable; Price, Advertising, Product Development, and Rel Price as the independent variables.
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Immediately after the second payment, the terms of the agreement are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment? (final answer should be $7778).
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How does the article support the Simple Circular Flow model and how does the article support the Law of Supply and Demand?
1. Suppose that Samantha expects to sell the pharmacy at the end of three years for $50,000 more than the price she paid for it and that she requires a 15% return on her investment. Should she still purchase the pharmacy.
Numerous Americans lack health insurance because they are unable to pay for it. However, the number of people who do not have health insurance is relatively small as compared to the overall population.
Identify some of the costs (pecuniary and nonpecuniary) associated with the antitrust behavior - were the firms investigated for antitrust behavior?
Michigan is offering financial incentives to improve health. Using economic model(s) demonstrate the impact of such policy on efficiency of the medical care system.
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