Consider two firms that provide a differentiated product, which they produce at the same constant marginal cost, MC = 3. The demand function for Firm 1 is q1 = 10 - p1 - 0.5p2 and for Firm 2 is q2 = 20 - p2 - 0.5p1, where p1 is Firm 1's price and p2 is Firm 2's price. What are the Nash-Bertrand equilibrium prices and quantities? If the two firms merged, what would be the new equilibrium prices and quantities, and how would they compare to the pre-merger prices?

Consider two firms that provide a differentiated product, which they produce at the same constant marginal cost, MC = 3. The demand function for Firm 1 is q1 = 10 - p1 - 0.5p2 and for Firm 2 is q2 = 20 - p2 - 0.5p1, where p1 is Firm 1's price and p2 is Firm 2's price. What are the Nash-Bertrand equilibrium prices and quantities? If the two firms merged, what would be the new equilibrium prices and quantities, and how would they compare to the pre-merger prices?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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Consider two firms that provide a differentiated product, which they produce at
the same constant marginal cost, MC = 3. The demand function for Firm 1 is q1 = 10 - p1-0.5p2
and for Firm 2 is q2 = 20 - p2 - 0.5p1, where p1 is Firm 1's price and p2 is Firm 2's price. What
are the Nash-Bertrand equilibrium prices and quantities? If the two firms merged, what would
be the new equilibrium prices and quantities, and how would they compare to the pre-merger
prices?

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