a) What is the market demand for the monopoly? (Hint: Compute the marginal consumer who is indifferent between “buy” and “not buy”. Also, be careful about whether the marginal consumer is bounded by the endpoints 0 and 1.) b) Now suppose the market is duopoly. Firm A is located at point 0 and Firm B at point 1. A consumer located at point (between 0 and 1) gets utility when buying from Firm A and utility when buying from Firm B. Marginal cost is 0. Suppose is sufficiently large such that all consumers buy one unit in equilibrium. Also, suppose both firms have positive demand. What is the demand for each firm? (Hint: Compute the marginal consumer who is indifferent between “buy from Firm A” and “buy from Firm B”.) c)In duopoly, what is the best response function for each firm? d) Determine the equilibrium prices and profits in duopoly.
A
a) What is the market demand for the monopoly? (Hint: Compute the marginal consumer who is indifferent between “buy” and “not buy”. Also, be careful about whether the marginal consumer is bounded by the endpoints 0 and 1.)
b) Now suppose the market is duopoly. Firm A is located at point 0 and Firm B at point 1. A consumer located at point (between 0 and 1) gets utility when buying from Firm A and utility when buying from Firm B. Marginal cost is 0. Suppose is sufficiently large such that all consumers buy one unit in equilibrium. Also, suppose both firms have positive demand. What is the demand for each firm? (Hint: Compute the marginal consumer who is indifferent between “buy from Firm A” and “buy from Firm B”.)
c)In duopoly, what is the best response function for each firm?
d) Determine the
Step by step
Solved in 5 steps
