Consider a market with the demand curve Q(P) = 3700– 100P. Two companies compete in Bertrand setting, where the first company has a marginal cost of $10 and a capacity of 100 units, and the second firm has a marginal cost of $20 and a capacity of 1000 units. Assume that fixed costs are zero. a) Show that both firms will sell in this market at a price above $20. b) Assume that the first firm is capacity constrained. From the perspective of the second firm, find the quantity sold in the market and the price set by the second firm. c) Now, using the result from the previous part, from the perspective of the first firm, find the quantity sold in the market and the respective price set by the first firm.

Consider a market with the demand curve Q(P) = 3700– 100P. Two companies compete in Bertrand setting, where the first company has a marginal cost of $10 and a capacity of 100 units, and the second firm has a marginal cost of $20 and a capacity of 1000 units. Assume that fixed costs are zero. a) Show that both firms will sell in this market at a price above $20. b) Assume that the first firm is capacity constrained. From the perspective of the second firm, find the quantity sold in the market and the price set by the second firm. c) Now, using the result from the previous part, from the perspective of the first firm, find the quantity sold in the market and the respective price set by the first firm.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 1E

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