Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Can someone please explain how to answer this using piecewise function?

Transcribed Image Text:2. Demand for a product is D(p) = 5-p, two firms are the potential producers of the product, for the consumer
products from each firm are exactly the same. Assume firm 1 has a marginal cost of c₁ = 1 and firm 2 has a marginal
cost of c₂ = 1.5. Assume that the lowest unit of prices is 1 cent (0.01). Both firms choose prices simultaneously.
a) Write the profit of each firm as a function of prices P1, P2
b) What is the optimal pricing strategy for each firm?
c) What are the equilibrium prices?
d) What is the consumer surplus?
e) What is the producer surplus?
f) True or false. Firms competing in prices for an homogeneous good make zero profits in equilibrium.
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