1) The market demand curve for mineral water is P=a-bQ. Suppose that there are two firms that produce mineral water, each with a constant marginal cost of c dollars per unit. Fill in the entries for each of the following duopoly models. a) Bertrand model (Price competition). b) Cournot model (quantity competition). c) Collusion. Model Bertrand Q1 Q2 QP (Profit margin)1 (Profit margin)2 Cournot Collusion Write up your analysis, and compare your answers. In which model, firms earn the highest profit margin?
1) The market demand curve for mineral water is P=a-bQ. Suppose that there are two firms that produce mineral water, each with a constant marginal cost of c dollars per unit. Fill in the entries for each of the following duopoly models. a) Bertrand model (Price competition). b) Cournot model (quantity competition). c) Collusion. Model Bertrand Q1 Q2 QP (Profit margin)1 (Profit margin)2 Cournot Collusion Write up your analysis, and compare your answers. In which model, firms earn the highest profit margin?
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
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