6. Two identical firms that have the cost function C(q) = 4q, where j = {1,2} are competing in a homogenous good market. The two firms make simultaneous decisions on price, and they face industry demand Q(P) = 20 - p. What is the Bertrand-Nash equilibrium profit of each firm? Hints for (b) and (c): Solve for each firm j's output (q;) and use the fact that II, Pjqj - Cj(qj). b. Now, suppose the two firms are deciding whether to set a collusive market price of $6 (this means that they would both charge $6). Solve for their profits under this pricing scheme. a. c. If one of the firms decides to deviate from the collusive scheme and undercut its rival's price by $1, how much profit would it earn?
6. Two identical firms that have the cost function C(q) = 4q, where j = {1,2} are competing in a homogenous good market. The two firms make simultaneous decisions on price, and they face industry demand Q(P) = 20 - p. What is the Bertrand-Nash equilibrium profit of each firm? Hints for (b) and (c): Solve for each firm j's output (q;) and use the fact that II, Pjqj - Cj(qj). b. Now, suppose the two firms are deciding whether to set a collusive market price of $6 (this means that they would both charge $6). Solve for their profits under this pricing scheme. a. c. If one of the firms decides to deviate from the collusive scheme and undercut its rival's price by $1, how much profit would it earn?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![6.
Two identical firms that have the cost function C(q) = 4qj, where j = {1,2} are
competing in a homogenous good market. The two firms make simultaneous decisions on price,
and they face industry demand Q(P) = 20-p.
What is the Bertrand-Nash equilibrium profit of each firm?
Hints for (b) and (c): Solve for each firm j's output (q;) and use the fact that Ij = p;qj - Cj(qj).
b. Now, suppose the two firms are deciding whether to set a collusive market price of
$6 (this means that they would both charge $6). Solve for their profits under this pricing
scheme.
a.
C.
If one of the firms decides to deviate from the collusive scheme and undercut its
rival's price by $1, how much profit would it earn?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F17e726fa-60ea-4899-ae1c-6450c3b2b29f%2Fc2033a95-ff8e-48fd-8efe-7a954c0880e7%2Fe6q2rb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:6.
Two identical firms that have the cost function C(q) = 4qj, where j = {1,2} are
competing in a homogenous good market. The two firms make simultaneous decisions on price,
and they face industry demand Q(P) = 20-p.
What is the Bertrand-Nash equilibrium profit of each firm?
Hints for (b) and (c): Solve for each firm j's output (q;) and use the fact that Ij = p;qj - Cj(qj).
b. Now, suppose the two firms are deciding whether to set a collusive market price of
$6 (this means that they would both charge $6). Solve for their profits under this pricing
scheme.
a.
C.
If one of the firms decides to deviate from the collusive scheme and undercut its
rival's price by $1, how much profit would it earn?
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