Consider two tea firms in duopolistic competition: Earl of Orange and Welsh Breakfast. Their costs are TCE = q and TCw=qw. They face market demand of: P = 10 - (qe + qw). If the market is characterized by Bertrand competition, which of the following do we know? PE = Pw = 1.

Consider two tea firms in duopolistic competition: Earl of Orange and Welsh Breakfast. Their costs are TCE = q and TCw=qw. They face market demand of: P = 10 - (qe + qw). If the market is characterized by Bertrand competition, which of the following do we know? PE = Pw = 1.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

Question

Consider two tea firms in duopolistic competition: Earl of Orange and Welsh
Breakfast. Their costs are TCE =qE and TCwqw. They face market demand
of: P = 10 - (qE+qw). If the market is characterized by Bertrand competition,
which of the following do we know?
PE = Pw = 1.
Both firms make positive economic profits.
One firm will exit in the long run.
Firm W's reaction function is qw = (9-)
2

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