I only need the answer for part C. Thank you! (1) Two firms produce goods that are imperfect substitutes. If firm 1 charges price p₁ andfirm 2 charges price p2, then their respective demands are91 = 12 - 2p1 + P2 and 92 = 12 + p₁ - 2p2.So this is like Bertrand competition, except that when p₁ > p2, firm 1 still gets a positivedemand for its product. Regulation does not allow either firm to charge a price higherthan 20. Both firms have a constant marginal cost c = 4.(a) Construct the best reply function pi (p2) for firm 1. That is, p₁ = = pi (p2) is the optimalprice for firm 1 if it is known that firm 2 charges a price p2. Construct a Nash equilibriumin pure strategies for this game. Are there any Nash equilibria in mixed strategies? If yes,construct one; if no provide a justification.(b) Notice that for any given price p₁, firm 1's demand increases with p2, so firm 1 is betteroff when firm 2 charges a high price p2. What is the best reply to p2 = 20? What is thebest reply to p2 = 0?(c) What prices for firm 1 are not strictly dominated? What prices would survive tworounds of strict dominance? Provide a reason for each strategy that you eliminate.

Demand function for firm 1 : q1 = 12 - 2p1 + p2 Demand function for firm 2 : q2 = 12 + p1 - 2p2…

(1) Two firms produce goods that are imperfect substitutes. If firm 1 charges price p₁ and firm 2 charges price p2, then their respective demands are 91 = 12 - 2p1 + P2 and 92 = 12 + p₁ - 2p2. So this is like Bertrand competition, except that when p₁ > p2, firm 1 still gets a positive demand for its product. Regulation does not allow either firm to charge a price higher than 20. Both firms have a constant marginal cost c = 4. (a) Construct the best reply function p (p2) for firm 1. That is, p₁ = p (p2) is the optimal

(1) Two firms produce goods that are imperfect substitutes. If firm 1 charges price p₁ and firm 2 charges price p2, then their respective demands are 91 = 12 - 2p1 + P2 and 92 = 12 + p₁ - 2p2. So this is like Bertrand competition, except that when p₁ > p2, firm 1 still gets a positive demand for its product. Regulation does not allow either firm to charge a price higher than 20. Both firms have a constant marginal cost c = 4. (a) Construct the best reply function p (p2) for firm 1. That is, p₁ = p (p2) is the optimal

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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