Consider the incomplete-information version of the spatial Bertrand model with firms i = 1, 2. For each firm, 25% of 1000 potential consumers are partially informed and only know about firm i’s product. The remaining 50% know about both firms’ products. Consumers are evenly distributed along a one-mile street and the shops are located at either end of the street. Assume all consumers have maximum willingness to pay of 16, (there-and-back) transport costs are 2, and the location of the indifferent consumer is xm = (p2 – p1 + t)/2, where pi is the price at shop i and t is transport costs. How much profit does each firm make if p1 = p2 = 12 and marginal (and average) cost c = 10 for both firms?
Consider the incomplete-information version of the spatial Bertrand model with firms i = 1, 2. For each firm, 25% of 1000 potential consumers are partially informed and only know about firm i’s product. The remaining 50% know about both firms’ products. Consumers are evenly distributed along a one-mile street and the shops are located at either end of the street. Assume all consumers have maximum willingness to pay of 16, (there-and-back) transport costs are 2, and the location of the indifferent consumer is xm = (p2 – p1 + t)/2, where pi is the price at shop i and t is transport costs. How much profit does each firm make if p1 = p2 = 12 and marginal (and average) cost c = 10 for both firms?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the incomplete-information version of the spatial Bertrand model with firms i = 1, 2. For each firm, 25% of 1000 potential consumers are partially informed and only know about firm i’s product. The remaining 50% know about both firms’ products. Consumers are evenly distributed along a one-mile street and the shops are located at either end of the street. Assume all consumers have maximum willingness to pay of 16, (there-and-back) transport costs are 2, and the location of the indifferent consumer is xm = (p2 – p1 + t)/2, where pi is the price at shop i and t is transport costs. How much profit does each firm make if p1 = p2 = 12 and marginal (and average) cost c = 10 for both firms?
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