Determine the set of Nash equilibria of the model and represent it in the same space as in partc.b). Are there multiple Nash equilibrium? What happens with the equilibrium prices when the productdifferentiation is absent and when it grows? Explain. 23.Competition à la Bertrand with heterogenous goods and symmetric linear costfunctions. Consider two firms competing à la Bertrand selling heterogeneous goods. The demand functionof firm i, j e {1, 2} is q; (Pi, Pj) = 1-p; +bpj, where b E (1, 2) represents the degree of product differentiation(homogeneous when b = 1 but differentiated when 2 > b > 1). Every firm i faces a linear cost functionC; (qi) = cq; where 1>c> 0, in producing every unit of the good.Find the best response functions for each firm (Hint: maximize profits for each firm and findа.the reaction function)b.Represent the best response functions for firm 1 i.e. p1 (p2) in a space in which p1 is the verticalaxis and p2 is the horizontal axis. What happens graphically with the best response function of firm 1 if thedegree of differentiation y increases? Interpet what you find.

Terms given:Firms Competing à la Bertrand: This refers to a competitive market scenario where two…

a. Find the best response functions for each firm (Hint: maximize profits for each firm and find the reaction function) b. Represent the best response functions for firm 1 i.e. P₁ (P2) in a space in which p₁ is the vertical axis and p2 is the horizontal axis. What happens graphically with the best response function of firm 1 if the degree of differentiation increases? Interpet what you find.

a. Find the best response functions for each firm (Hint: maximize profits for each firm and find the reaction function) b. Represent the best response functions for firm 1 i.e. P₁ (P2) in a space in which p₁ is the vertical axis and p2 is the horizontal axis. What happens graphically with the best response function of firm 1 if the degree of differentiation increases? Interpet what you find.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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