2. Suppose that two products, i= 1, 2, are located at the extreme ends of the [0,1] interval. Let li denote the location of the product and x the consumer locations. Consumers buy one unit and are uniformly distributed on the unit interval; their indirect utility is given by r - pit |li - xl, where r is the willingness to pay, pi the price set by firm i, and t a parameter that measures the disutility from not consuming their ideal product. Marginal cost of production is constant and equal to c. Solve for the Stackelberg equilibrium in prices where the firm located at zero is the leader firm. Is there an advantage for being a price leader, that is, is there a first-mover advantage? Why? Explain. Compare the results with simultaneous choice of prices.

2. Suppose that two products, i= 1, 2, are located at the extreme ends of the [0,1] interval. Let li denote the location of the product and x the consumer locations. Consumers buy one unit and are uniformly distributed on the unit interval; their indirect utility is given by r - pit |li - xl, where r is the willingness to pay, pi the price set by firm i, and t a parameter that measures the disutility from not consuming their ideal product. Marginal cost of production is constant and equal to c. Solve for the Stackelberg equilibrium in prices where the firm located at zero is the leader firm. Is there an advantage for being a price leader, that is, is there a first-mover advantage? Why? Explain. Compare the results with simultaneous choice of prices.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Questions g) and h)
Need help for questions d),e),f)
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3.
answer only d,e and f